ROME: Economy Minister Giulio Tremonti appears isolated and weak after being forced to hastily draw up Italy's second austerity plan in less than a month under the orders of the European Central Bank (ECB).
Tremonti has never been popular among his colleagues and has had often strained relations with Prime Minister Silvio Berlusconi, but he could always boast that his prudent fiscal policies had kept Italy out of the euro zone debt crisis.
That claim lies in tatters after a massive sell-off that has forced the ECB to buy Italy's government bonds on the market to bring down soaring yields.
In return the bank dictated tough conditions, forcing Tremonti to rewrite his previous austerity programme to bring forward by a year his plans for a balanced budget.
That will be very unpopular with voters, and demolishes Berlusconi's coveted image as a bulwark against any attempt to raise Italians' taxes. La Stampa daily forecast on Saturday that Berlusconi would ask Tremonti to resign in September, after parliament has approved the budget.
“Abandoned by everyone”, was the headline in Italy's largest daily Corriere della Sera, above an article citing criticism of Tremonti by various member of the ruling majority.
“In the last few days I think Giulio has felt a lack of support around him that it would be an understatement to define as enormous,” it cited junior minister Guido Crosetto as saying.
Berlusconi said on Saturday that he expected to see out his term of office with Tremonti, though he admitted to “some differences of opinion”.
Much may depend on how markets treat Italy over the next few weeks, but there is no doubt that the economy minister's previous reputation as the anchor of fiscal rigour in Italy has also been badly undermined by recent events.
The latest package is already being criticised by economists.
Tito Boeri, economics professor at Milan's Bocconi University, said he was “very disappointed” by the plan and was concerned that markets would take a similar view.
“There are no structural spending cuts, nothing in the near term on pensions, no reforms that can help the economy, and instead we have a series of tax hikes that will have exactly the opposite effect,” he said.
In news conferences and parliamentary appearances in the last few days, a crestfallen Tremonti made no attempt to disguise the extent to which policy was now being dictated by the ECB.
The latest plan is full of tax hikes analysts say will weigh on already weak economic growth, undermining the prospects of reaching the new, tougher deficit targets.
Barclays Capital on Friday cut its forecast for Italian economic growth in 2012 to 0.7%, just over half the government's official 1.3% forecast.
It also forecast budget deficits of 2.3% of gross domestic product next year and 0.9% in 2013, well above the government's goal of 1.4% and zero.
The plan has been fiercely attacked by trade unions and local govenment representatives who say it will hit frontline services, while analysts lament the reliance on tax hikes and lack of deep reforms to help growth.
“The markets will get impatient if they don't get concrete reforms rolled out quickly,” said Raj Badiani of IHS Global Insight.
At a news conference on the package on Saturday, Tremonti seemed concerned with defending his reputation.
He stressed repeatedly that the worsening of sentiment towards Italy was not due to failings in his previous plans, and said he was going to spend part of the summer writing a book to give the real version of events leading to the market rout.
Boeri said it was no wonder the minister seemed depressed.
“His job has basically been taken over by the ECB” he said. - Reuters
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