New austerity package approved in Italy

Italy's cabinet yesterday evening announced drastic austerity measures, including tax increases and spending cuts, to try to tackle  its huge public debt and balance its budget by 2013.

The approval came despite fierce resistance from local government officials who claimed they were socially unjust”.

After an emergency cabinet meeting, Prime Minister Silvio Berlusconi announced a savings package worth over €45 billion  spread out over the next two years.

The new measures come on top of a previous round of spending cuts announced in July which aimed to balance the budget by 2014. The public debt burden, at 120% of gross domestic product (GDP), is second only to Greece’s in the eurozone.

Berlusconi said he agreed to the tax increases only reluctantly and the decision made his "heart drip blood."

"Our hearts are bleeding. This government had bragged that it never put its hands in the pockets of Italians but the world situation changed," Berlusconi said. "We are facing the biggest global challenge."

"We are personally very pained to have to adopt these measures," he told reporters after the cabinet approved the plan, which had been demanded by the European Central Bank as a condition for buying Italian bonds.

Earlier this week, the European Central Bank announced it would buy Italian debt in a effort to lower its cost of borrowing.

"This program goes in the direction of what the ECB recommended," Berlusconi added.

"We therefore decided to meet the demands that the institution was making of us in order to justify itself to other European countries, particularly Germany, the Netherlands and Finland, for spending public money," he said.

On Wednesday, the Milan stock suffered its sharpest one-day drop since the Lehman Brothers crisis in October 2008, with the main index falling 6.65%.