Prime Minister Silvio Berlusconi agreed today to accelerate plans to restore Italy's public finances after a day of hectic telephoning with international partners alarmed at the escalating crisis over Italian debt.
Speaking at a hastily called news conference after markets closed, Mr Berlusconi promised to bring forward austerity measures passed last month and get the budget into balance by 2013, a year ahead of the original schedule.
"We consider it appropriate to introduce an acceleration of the measures which we introduced recently in the fiscal planning law to give us the possibility of reaching our objective of balancing the budget early, by 2013 instead of 2014," he said.
With Economy Minister Giulio Tremonti sitting alongside, he said the government would introduce a constitutional balanced budget amendment and accelerate unspecified tax measures to help cut the deficit. Tremonti said there would also be labour reforms.
"There is a very particular attention from international speculation on us that we must try to counter," Mr Berlusconi said.
The moves followed widespread criticism that Italy had failed to act decisively enough to halt a market emergency that has threatened to engulf the entire euro zone and triggered near-panic on financial markets.
Italian 10 year bond yields have risen over 6 per cent, and the spread over benchmark German Bunds briefly went past the equivalent spread between Spanish and German debt today, indicating that investors saw Italy as riskier than Spain.
Earlier today, sources told Reuters the European Central Bank had agreed in principle to buy Italian bonds on secondary markets as early as next week on the condition that it brought forward key structural reforms.
Italy has been in the crosshairs of bond markets since early July as doubts have grown about the sustainability of its huge public debt and the ability of its fractious government to adopt deep reforms needed to revive its chronically weak growth.
A €48 billion austerity plan passed in parliament last month has been widely criticised for delaying most cuts until after elections scheduled in 2013 and doing nothing for growth.
Little detail was given at the news conference this evening on the latest plans to cut the deficit, but Mr Tremonti said the steps would consist largely in measures which have already been agreed.
"We have decided to bring forward the contents of our austerity programme, there will not be additional or new measures," he said.
"It's not a question of changing [the plan], it's a question of bringing it forward by a year because in a month it seems like the world has changed".
Mr Berlusconi and Mr Tremonti spent much of the day on the telephone speaking to world leaders including German chancellor Angela Merkel, French president Nicolas Sarkozy and US treasury secretary Tim Geithner.
Reuters