Faced with a sovereign debt crisis, Italian Prime Minister Silvio Berlusconi yesterday announced $65 billion in austerity measures including tax hikes and spending cuts over the next two years in order to balance the budget by 2013.
The painful austerity drive is also made in order to meet the European Central Bank (ECB) demand to bolster Italy's strained public finances and boost confidence in Europe's banking sector, which has been hit hard by the sovereign debt crisis.
The ECB, which administers the monetary policy of the 17 EU Eurozone member states, had last week started to buy Italian bonds, which helped the country drive down its borrowing costs.
But the move from the Frankfurt-based ECB was made on the condition that Italy make substantial changes in its economic policy, which included liberalising its labour market, privatising state-owned companies and adjusting its pension system.
After being criticised for not coming up with a creditable plan on how the country would meet with ECB's target on balancing the budget by 2013, Berlusconi yesterday called an emergency cabinet meeting to announce harsh cuts to balance the budget deficit.
The austerity measures includes a 5 per cent extra tax on those earning more than €90,000 per year, 10-per cent more on incomes above €150,000 and an increase in capital gain tax from the current 12.5 per cent to 20 per cent.