Italy's Austerity Budget

Giulio Tremonti

In the first three months of the year, Italy’s economy—the third-largest economy in Europe—expanded 0.1%, while the euro-zone as a whole grew 0.8%. That’s the real issue, not Italy’s public debt, which is projected to peak at 120 per cent of GDP this year. In fact, many analysts say Italy should be more worried about its long-term prosperity than its solvency. Hence the government’s three-year austerity plan (see here and here), presented by Economy Minister Giulio Tremonti yesterday. The plan—€52 billion (about $74 billion) in fiscal savings—is designed to reduce the budget deficit to 3.9 per cent of gross domestic product this year and gradually to zero by 2014, but also and especially to reignite Italy’s feeble economy with measures including tax breaks for young entrepreneurs and longer store opening-hours on weekends, and to boost Italian productivity, which is among the lowest in Europe. Will it work? Well, ask credit rating agencies, if you still trust them, otherwise, follow your nose—that’s my favorite option right now, though not entirely disinterested, I must admit…