Italy cabinet gives go-ahead to crisis-busting plan

Italy has given the green light to a draconian austerity package estimated to save 20 billion euros. The plan, which includes cuts, taxes and pension reforms, will be presented to parliament on Monday, but the government has already warned it will not prevent the country’s economy from slipping back into recession next year. 

Reuters/Remo Casilli

Prime Minister Mario Monti’s three-year-plan increases taxes on housing and luxury items and includes an option to raise value-added tax if necessary.

It also includes a controversial pension reform that will increase the minimum pension age for women to 62 from 2012 and see both sexes retire at 66 by 2018, as well as increase the number of years they have to contribute.

Trade unions have sharply criticised the pension move with the head of Italy’s largest union, the CGIL, claiming the measures were aimed at “making money on the backs of poor people in our country.”

Italy, the eurozone’s largest economy, needs to prove to its European neighbours that it can control its massive budget deficit which currently stands at 120 per cent of GDP.

The government insists it will meet its target of balancing the budget by 2013.

Italy's budget plan comes at the start of a crucial week for the future of the euro.

German Chancellor Angela Merkel is in Paris on Monday for talks with French President Nicolas Sarkozy ahead of an EU summit in Brussels on Friday.