September 8, 2011

How Kind of You, Mr Trichet

ECB President Jean-Claude Trichet
And finally they (almost) got their homework done. In fact, after its approval by the Italian Senate yesterday, the much-revised, corrected, enlarged and “improved” package of austerity measures goes to the lower house, where the vote is expected on Monday.

The plan includes a controversial—previously approved and then categorically denied—increase in the value-added tax rate to 21% from 20%, the introduction of a 3% “solidarity tax” on people who earn more than EUR300,000 a year (after stating on Tuesday that the threshold would be EUR500,000), and (surprise, surprise!) an increase in the retirement age for women working in the private sector to 65 from 60 as of 2014. The package also includes a significant and much-debated change—aimed to make the economy more flexible—to Italian labor law making it easier to hire and fire workers, and makes some forms of tax evasion a criminal offense. Last but not least, the government will seek to amend the constitution to introduce the principle of a balanced budget and to eliminate a tier of local government at the provincial level. (See here, here and here for details.)

Will that be enough to tackle Italy’s deep-rooted economic and financial problems (debt and lack of growth)? Of course, according to the opposition the package doesn’t address those obstacles in any concrete way. But the European Commission welcomed on Tuesday night the amendments, calling for their rapid adoption. And today the impeccable Mr. Trichet said (how kind of him), “We have confirmation that there is implementation of what was said in terms of overall results. And that, of course, is of extreme importance.” Can we trust him? Well, I think so, but I am a naturally optimistic person...

What is fairly certain, however, is that the Italian government’s flip-flopping on which measures to include in the final plan has not done anyone a service—other, perhaps, than the stock speculators… OK, OK, I know, they are not of this world, they are aliens, but why rattle their cage?

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