08/14/2011 07:33 EDT | Updated 10/14/2011 05:12 EDT

Italy Debt Crisis: Berlusconi Austerity Package Sets Up Showdown With Labour


ROME - The leader of Italy's largest union is threatening a general strike against an austerity package that Prime Minister Silvio Berlusconi's government hastily pushed through to balance the budget by 2013 and avoid financial collapse.

The threat came amid mounting criticism Sunday of the euro45.5 billion (US$64.8 billion) package passed Friday in response to demands by the European Central Bank.

Critics say the package — a mix of spending cuts, job cuts and tax increases, including a "solidarity tax" for high-earners — will strangle Italy's stagnant economy, which is now expected to grow by only about 1 per cent this year.

Other critics, including nine members of Berlusconi's own coalition, say it unfairly targets the middle class and fails to tackle Italy's massive tax evasion problem.

Susanna Camusso, leader of the CGIL labour union, criticized measures aimed at liberalizing Italy's labour market and targeting its pension system, saying a strike is the only way to "change the inequity of this package." She told the La Repubblica newspaper that union officials will meet Aug. 23 to set a strike date and invited other unions to join.

At least one other union, CISL, said it will not take part in the protest, although it said the package needed to be improved.

The new measures include euro20 billion ($28.5 billion) in cuts and tax hikes for 2012 and euro25.5 billion ($36.3 billion) for 2013. They abolish some local government layers and gradually eliminate some 50,000 elected jobs — leading to fierce protests by local officials. Citizens face a 5 per cent additional tax on income above euro90,000 ($128,250) and a 10 per cent additional tax on income above euro150,000 ($213,750) for the next three years.

Both Berlusconi and his finance minister, Giulio Tremonti, have defended the government's actions. Tremonti insisted the debt crisis could not have been predicted but said it could have been avoided with the creation of Eurobonds, a new joint bond backed by all 17 countries using the euro.

"We wouldn't have gotten here if we had had Eurobonds," Tremonti told reporters, calling for more "integration and consolidation of public finances in Europe."

Germany, the strongest economy in the eurozone, has rejected the Eurobond idea.

Berlusconi called Italy's new austerity measures fair and said they had won praise from the European Central Bank and leaders including German Chancellor Angela Merkel.

EU President Herman Van Rompuy called the measures were "crucially important" not just for Italy, the eurozone's third largest economy, but for all of Europe.

"I fully support and welcome the timely and rigorous financial measures," Van Rompuy said after talking to Berlusconi on Saturday.

Berlusconi insists the measures will be passed by parliament quickly when lawmakers return from vacation. But many — from the opposition, the business world and even Berlusconi's own ranks — have urged parliament to make amendments.

Emma Marcegaglia, the head of Italy's entrepreneurs association Confindustria, praised some moves — such as cutting political jobs and liberalizing local services — but demanded the government do more to stimulate growth. She also urged an increase in the value added tax and a reform of the pension system.