Italy appears to have admitted that its recent austerity plans fail to go far enough to bring down its deficit to levels that would be acceptable to the European Central Bank. Prime Minister Silvio Berlusconi agreed to overhaul the 45 billion euro ($66 billion) austerity plan that persuaded the ECB to support Italy’s bonds, dropping a tax on the highest earners and limiting funding cuts to regional governments, Bloomberg reports.
The move is in contrast to most austerity program revisions by EU nations. Usually they consist of higher taxes coupled with government expense cuts. The ECB probably convinced Italian officials that high taxes, in some cases, are regressive and slow economic recovery.
Ideally, the other nations in the region — those that asked for or have been given bailouts — will try to stimulate their economies by implementing tax structures that encourage individual and business spending and limit government expense cuts. Many economists believe that a marriage of new taxation and government spending cuts is a formula for a new and deep recession in the deficit-burdened nations. Other nations have adopted this same philosophy, particularly the UK and U.S.
The number of voices raised against high taxes and elimination of government investment in national economies has risen. In the U.S., the opposition to current plans is led by Nobel Prize-winning economist Paul Krugman. Perhaps he can use the Italian change of heart to defend his views.
Douglas A. McIntyre