ROME (Reuters) – Opaque pledges and a lack of detail on measures to speed up deficit reduction plans risk undermining Italy's hopes of winning a reprieve from financial markets that have pushed the country to the brink of crisis.
Desperate to stop market panic that has sent Italian bond yields soaring to 14-year highs, Italian Prime Minister Silvio Berlusconi hastily announced plans on Friday to speed up reforms and balance the budget by 2013, a year ahead of schedule.
Initial reaction from analysts and the European Union's top economic official was positive, but whether the pledges convince the European Central Bank to bolster Italy by buying its bonds, or calm market tensions, may hinge on the specifics of the plan.
So far, few seem to know what the plan will include. Indeed it is unclear if the government itself knows.
"The decision to bring forward the balancing of the budget is a positive step but we need a lot more detail," said Raj Badiani of IHS Global Insight, warning that the promised reforms are unlikely to happen overnight.
"The problem is Italy doesn't have time right now and the reforms they announced are easier said than done."
Economy Minister Giulio Tremonti said on Friday there would be no new austerity measures beyond those announced in a 48 billion euro package passed last month which contained cuts to local government funding, health charges and vague plans for a mix of welfare cuts and tax measures.
That programme was widely criticised for delaying the bulk of measures until after elections in 2013 and Tremonti said it would be accelerated but offered no specifics about a plan which in any case still had to be fleshed out in important areas.
ECB sources say the bank -- which is due to discuss later on Sunday whether to buy Italian bonds -- remains divided on the issue and even some of those who favor the move want Italy to do more to frontload its austerity measures.
Some proposals, like a fee for non-urgent medical visits and tests, quickly sparked a popular backlash and prompted talk of alternatives. Even without any such backtracking, the funding cuts make up only a relatively small portion of the plan.
For the bulk of the savings, the government will ask parliament to approve a so-called "delega fiscale" or "tax delegation law" and "delega assistenziale" or "welfare delegation law" -- something of a political blank cheque.
The laws allow parliament, which is delaying its summer break to continue sitting next week, to "delegate" to government the job of drawing up tax and welfare measures worth, in this case, up to about 20 billion euros, within a certain time.
Only after that, would the government nail down the measures and get them approved by parliament.
In a sign that nothing concrete has been finally settled, daily Corriere della Sera on Sunday said government experts had decided the welfare system could not contribute the additional funds needed and were now eyeing the pensions system.
LACK OF CREDIBILITY
Whether deficit reduction measures, even brought forward by a year, will do much to address Italy's major economic problem of declining productivity and weak growth is also questionable.
Italy already runs one of the lowest budget deficits in the euro zone at 3.9 percent of GDP this year, which together with its conservative banking system and high rate of private savings, has kept it largely clear of the euro zone debt crisis until last month.
Ratings agencies have been much more worried about the chronically weak growth which makes it impossible to catch up with and contain a steadily increasing public debt burden which now amounts to 120 percent of gross domestic product.
Successive governments have managed the debt successfully, running primary budget surpluses, excluding interest rate payments, to help pay debt servicing costs estimated in a UBS research note last week as running at 4 percent of GDP.
However as the UBS analysts wrote: "The recent turbulence is not about fundamentals. It looks more like a crisis of confidence."
Analysts fear that most of the cuts, or any tax hikes, will at any rate bite only after scheduled elections in 2013, doing little to restore investor confidence in Italy.
"The only real decision is that of bringing forward the balancing of the budget to 2013, but that doesn't seem very credible because 2013 will be an election year," said Tito Boeri, economics professor at Bocconi university in Milan.
"They should have brought it forward to 2012, when the impact of the measures announced so far is quite small."
Berlusconi's remaining pledges face the risk of not being implemented at all.
A decision to put the balanced budget principle into the constitution, for example, appears aimed at convincing markets that fiscal discipline will be binding from now on.
But Berlusconi has not said exactly what he means by the principle, although the government has previously spoken of a rule requiring budgets to be kept in balance unless new borrowing is required for investment spending.
The pledge is in any case likely to take at least a year due to the complicated parliamentary procedure needed for constitutional changes -- and even then, risks being ignored in practice when it is in the constitution.
Tremonti's promise of long-awaited reform to liberalise Italy's rigid and inefficient Labor market -- seen as vital to getting more young people back into secure, long-term employment -- has yet to be discussed with unions or employers.
Berlusconi last week promised a wide ranging reform pact with unions and employers covering areas ranging from cutting red tape to reducing the cost of government but any firm proposals will have to wait for September.
Rather unhelpfully for the government, Italy's biggest and most powerful union CGIL's first response to Berlusconi's pledges was to declare that any deal with his government was impossible and that his measures were "killing the country."
Analysts, predictably, remain sceptical.
"Implementation risks are mostly related to how the reform agenda (particularly Labor market reform) will eventually shape up -- no details have been provided on this front, therefore a judgment on the effectiveness of the reform agenda is premature at this stage," UniCredit economist Chiara Corsa said in a note.
(Additional reporting by Silvia Aloisi in Milan, editing by Mike Peacock)
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