New Italian Premier prioritises growth over austerity

In his first speech to parliament, Italy’s new centre-left Prime Minister and leader of a grand coalition, Enrico Letta, ended plans to increase tax rises worth up to £6 billion in a break from his technocratic predecessor’s policy of austerity.

While laying out his program of prioritising growth, Mr Letta said that he would visit Berlin, Brussels and Paris in an effort to change Europe’s focus on austerity. “We will die of fiscal consolidation alone. Growth policies cannot wait any longer,” Mr Letta said in relation to the failing austerity imposed over the past two years.

Despite promising a cancellation in recent tax hikes, including an unpopular new housing tax and rises in value added tax, he did not comment on where the lost revenues would be found.  Nor was there mention on whether the government would seek to privatise state-controlled companies or sell state assets. 

In the speech, Mr Letta also confirmed his commitments to the European Union project promising to keep the budget within 3 per cent of agreed targets with Brussels.  This means that Fabrizio Saccomanni, the incoming finance minister, has the difficult task of balancing the books, potentially through spending cuts in other areas.

The speech is widely being seen as an attempt to maintain unity within a coalition that was hastily formed after two months of deadlock since inconclusive elections.  Silvio Berlusconi’s centre-right People of Liberty party, one of three partners in the coalition, made the issue of cancelling the housing tax a precondition for its participation.

Acknowledging the divisions within Mr Letta’s own party, whose left-leaning members were opposed to the coalition, Letta said that Italy would broaden an inadequate welfare system to include more provisions for young people, women and workers on temporary contracts.  Businesses would also be given tax incentives to hire young workers, stressing that employment is Mr Letta’s priority.

In a positive development, Monday’s Italian sovereign bond sale saw five and 10-year bonds fall to their lowest levels since 2010.

Peter Winnicki