Berlusconi gives nod to austerity plan overhaul

Written by Bloomberg | Updated: Aug 31 2011, 05:30am hrs
PM Silvio Berlusconi agreed to overhaul the 45-billion-euro ($66 billion) austerity plan that persuaded the ECB to support Italys bonds, dropping a tax on the highest earners and limiting funding cuts to regional governments.

Berlusconi and finance minister Giulio Tremonti agreed to the changes after a seven-hour meeting on Monday with officials of the Northern League, a key coalition ally opposed to parts of the original plan that aimed to balance the budget in 2013. The overhaul comes as Italy auctions 8 billion euros of bonds on Tuesday, the first benchmark sale since the ECB began buying on August 8. A spokesman for the ECB declined to comment.

The ECB will raise its voice if there arent further guarantees that its completely covered, said Marco Valli, UniCredits chief euro-zone economist. It seems now that there will be some kind of revenue shortfall, but we still dont have all the details and its probable that for now, the ECB will be keeping a close eye on this.

The original package was the second austerity plan in a month adopted by the government as Italy tries to convince investors it can tame the debt and avoid following Greece, Ireland and Portugal in seeking a bailout. The plan was thrown together in days and passedon August 12.