MercoPress. South Atlantic News Agency

Italian parliament does its homework and approves sweeping austerity budget

Privatizations, next step says Italy's Finance Minister Giulio Tremonti

Italy's upper house of parliament has agreed to a sweeping austerity budget in a move intended to allay concerns over a possible bailout. Meanwhile, Greece must come to terms with another ratings downgrade.

The Italian senate approved a tough austerity package on Thursday, which puts forward cuts totaling 48 billion Euros over the next three years. Italy's lower house of parliament is expected to approve the plan on Friday evening.

Italy's Finance Minister Giulio Tremonti has promised to step up privatization moves once the budget is fully passed.

The measures are designed to allay concerns that Italy, the Euro zone's third largest economy, will need to be bailed out by the European Union and the IMF. Bond markets have shown doubt about Italy's ability to sustain its debt burdens.

Mario Draghi, member of the European Central Bank Governing Council, said the Italian government should move ahead with further measures to ensure it meets its budget reduction target.

“The substance of future measures aimed at balancing the budget by 2014 should be defined as rapidly as possible,” said Draghi. “This is what markets are looking at above all today”.

Meanwhile, Fitch has become the last of the three global ratings agencies to demote Greek bonds to junk status, effectively one step above default.
On Wednesday, Greece's rating was lowered to CCC from B+ and Fitch said this was due to growing uncertainty about the role private investors would play in any new bailout plan.

In a statement, the Greek Finance Ministry said the downgrade of its credit status was “puzzling” considering the EU and IMF have a timetable for the rescue program.

Fitch expressed concern that Greece was relying on getting 30 billion Euros out of its privatization program, which looks “increasingly challenging.”

The IMF said Greece needs another 100 billion Euros in aid to avoid a default, and that it should come from the European Union and private creditors.

In a report, the IMF said it intended to continue its own financing program, but noted that Greece is continuing to stagger. It projected Greece would suffer a deeper 2011 recession than previously thought.

Euro zone finance ministers pledged Monday to strengthen the size and scope of a multibillion-euro fund set up after Greece was rescued last year.

One idea is to allow the fund to buy back Greece's mountain of debt, which will enable the country to borrow at better rates on the markets. Germany had been opposed to such a plan but said it was now “possible.”

Germany, Finland and the Netherlands are open to a selective default for Greece, expected to arise from private investor participation of about 30 billion Euros. However, other Euro zone nations oppose this idea.