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Italy borrowing costs fall on austerity plan Italy borrowing costs fall on austerity plan
(about 1 hour later)
Italy's implied cost of borrowing in financial markets has fallen after new Prime Minister Mario Monti unveiled his austerity plans over the weekend.Italy's implied cost of borrowing in financial markets has fallen after new Prime Minister Mario Monti unveiled his austerity plans over the weekend.
In early Monday trading, the country's 10-year bond yield fell modestly to about 6.4% from 6.66% on Friday.In early Monday trading, the country's 10-year bond yield fell modestly to about 6.4% from 6.66% on Friday.
The government has adopted a package of emergency austerity measures aimed at fending off insolvency.The government has adopted a package of emergency austerity measures aimed at fending off insolvency.
Meanwhile the French and German leaders are meeting ahead of a key eurozone summit on Friday.Meanwhile the French and German leaders are meeting ahead of a key eurozone summit on Friday.
A sharp rise in Italian and Spanish borrowing costs to levels seen as unsustainable in the long run, as well as a broad collapse of market confidence in Europe's banking system, has raised fears that Italy may be forced to exit the single currency.A sharp rise in Italian and Spanish borrowing costs to levels seen as unsustainable in the long run, as well as a broad collapse of market confidence in Europe's banking system, has raised fears that Italy may be forced to exit the single currency.
The 6.5% interest rate implied by markets for a 10-year loan is still much higher than the rates Italy faced only two months ago.The 6.5% interest rate implied by markets for a 10-year loan is still much higher than the rates Italy faced only two months ago.
It remains at a level that Rome cannot afford to pay as and when it reborrows the money needed to meet the payments falling due on its heavy debt load.It remains at a level that Rome cannot afford to pay as and when it reborrows the money needed to meet the payments falling due on its heavy debt load.
'Save Italy''Save Italy'
The former EU commissioner Mr Monti, who replaced Silvio Berlusconi as prime minister last month in response to the financial crisis, has moved quickly to announce painful budget-cutting measures.The former EU commissioner Mr Monti, who replaced Silvio Berlusconi as prime minister last month in response to the financial crisis, has moved quickly to announce painful budget-cutting measures.
Taxes on the assets of the wealthy will go up, as will pension ages. There will be a major drive to tackle tax evasion. Taxes on the assets of the wealthy will go up, as will pension ages.
Mr Monti said the measures were necessary to "save Italy", and announced he would give up his own salary as part of the effort. There will be a major drive to tackle tax evasion, including a ban on cash transactions in excess of 1,000 euros, down from a current limit of 2,500 euros.
The plans must still be approved by the Italian parliament.
Mr Monti will outline the measures in full to lawmakers on Monday, but a few elements have already been announced.
Pension ages will rise to 62 for women and 66 for men, and most payments will be unlinked from inflation. The pension age for women will rise to 66 from 2018.Pension ages will rise to 62 for women and 66 for men, and most payments will be unlinked from inflation. The pension age for women will rise to 66 from 2018.
In all, the austerity package is estimated to represent 20bn euros (£17bn; $26.8bn) of savings from now until 2014.In all, the austerity package is estimated to represent 20bn euros (£17bn; $26.8bn) of savings from now until 2014.
The measures were agreed at a cabinet meeting held 24 hours ahead of schedule because of the growing pressure on Italy's finances.The measures were agreed at a cabinet meeting held 24 hours ahead of schedule because of the growing pressure on Italy's finances.
Decisive phase Mr Monti said the measures were necessary to "save Italy", and announced he would give up his own salary as part of the effort.
Italy has recently been compelled to pay the kind of very high rates of interest that eventually forced Greece to call for an international bailout. The plans must still be approved by the Italian parliament.
On Monday, German Chancellor Angela is due to meet French President Nicolas Sarkozy in Paris to outline joint proposals on closer ties between eurozone economies which they announced last week. Minimum wage
Eurozone leaders have warned the bloc is entering a decisive phase in its bid to resolve the debt crisis. They are due to meet on Thursday and Friday in Brussels to try to agree a broader rescue plan. The reforms also include measures aimed at boosting output in a country whose economy has grown just 0.75% per year on average for the last 15 years.
Mr Monti, a former EU commissioner, said there would be no room for error at the summit and that financial markets would punish inaction. The entry requirements for regulated professions such as lawyers will be lowered to encourage more competition.
"The choice is between adopting tough austerity measures and starting the euro rescue, or Italy not being able to stand on its feet, and we risk the collapse of the euro," said Emma Marcegaglia, head of Italian employers' lobby Confindustria. Mr Monti also announced plans to weaken protection for full-time employees while seeking to improve the lot of the growing number of part-time and casually employed workers, including the introduction of a minimum wage.
However, these labour market reforms will first need to be discussed with business organisations and the unions.
Emma Marcegaglia, head of Italian employers' lobby Confindustria, said: "The choice is between adopting tough austerity measures and starting the euro rescue, or Italy not being able to stand on its feet, and we risk the collapse of the euro."