Italian debt: PM Berlusconi announces new measures

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Prime Minister Silvio Berlusconi: ''Our hearts are bleeding''

Italy has announced a fresh round of austerity measures after an emergency cabinet meeting.

The 45bn euro ($64bn: £40bn) plan aims to balance Italy's
budget by 2013, a year earlier than had been planned by slashing public
spending and jobs.




PM Silvio Berlusconi said the measures were painful but unavoidable.




On Monday the European Central Bank announced it would buy Italian debt in a successful effort to lower its cost of borrowing.




The new measures come on top of a previous round of spending cuts announced in July which aimed to balance the budget by 2014.




Italy's borrowing costs rose sharply before the move as
investors lost confidence in the government's ability to reduce its
deficit.


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

More than 50,000 jobs will be cut in local government at some
point in the future and some public holidays which fall on weekdays
will be transferred to Sundays, in order the increase the number of
working days in the year.




The measures include further cuts to regional budgets and a
new "solidarity tax" on high earners, with those earning over 150,000
euros taxed an additional 10% in each of the next two years.




Tax on dividends and earned interest will also rise by 7.5%.




The measures still need to be approved by the Italian parliament, which must make its decision within 60 days.




The measures "risk having a negative effect on consumption by
slowing down growth next year", warned Fabio Fois an analyst with
Barclays Capital.




However the plan "goes in the right direction" to reducing the deficit, he added.




Regional leaders have criticised the cuts, saying services like education, health care and road maintenance will all suffer.




"For us, the fiscal measures which have been proposed are
absolutely unjust," said Giuseppe Castiglione, head of the Union of
Italian Provinces.




The Italian stock market recovered on Friday after Italy
joined other European governments in banning short selling on some
shares.




The main FTSE Mib index rose sharply, ending the day 4% up.