Analysis: Glimmers of hope for deficit-cutting panel (Reuters)

WASHINGTON (Reuters) – Having said no to taxes for months, Republicans now are saying maybe, in the face of public disgust over a deadlock in the Congress, a near government default and a worsening global economic crisis.

Prompting some hope for a return to fiscal order are the statements and reputations of some of the six Republicans named this week to join with six Democrats on a special committee to end the standoff over the U.S. deficit.

In one of his first interviews after being named to the "Joint Select Committee on Deficit Reduction," Representative Dave Camp told Reuters, "I don't want to rule anything in or out" when the panel starts its work.

That's a far cry from what had been a Republican wall of opposition to any tax increases when President Barack Obama negotiated a $917 billion deficit-reduction down payment with Republicans that also was aimed at raising U.S. borrowing authority by August 2.

Public disgust with the long, bitter budget and debt limit fight that has consumed Washington all year could have played a role in the less confrontational tone.

A Reuters/Ipsos poll released this week found 49 percent of those polled had a negative view of Republicans in the wake of the debt limit deal, compared to 42 percent for Obama and 40 percent for Democrats broadly.

John Feehery of Quinn Gillespie Communications and a former Republican congressional staffer said lawmakers may now be more willing to reach a deal on additional deficit reductions given the public reaction to the debate over the debt ceiling.

"People are going back home (during the August recess) and they are finding the intense partisanship does not really work in the rest of the country," Feehery said.

Further evidence that the "super committee" is taking its responsibilities seriously: members are considering cutting short their August recess to start work, knowing a November 23 deadline allows little time to tackle major tax and budget questions that could lead to another $1.5 trillion in savings over the next decade.

Representative Chris Van Hollen, a Democratic member of the panel, told Reuters, "There's a good argument in favor of getting an early start." "There have been a number of conversations on both sides of the aisle" about it, he added.

HISTORY OF DEAL-MAKING

Feehery and other analysts feel the composition of the committee also bodes well for agreement.

"These are folks who are deal cutters," Feehery said of Camp, Republican Senator Rob Portman, a former White House budget director, and Representative Fred Upton. Upton worked on some major tax and spending agreements during a stint at the White House budget office under President Ronald Reagan.

Even conservative partisan Representative Jeb Hensarling may be ready to deal, analysts say. "In the right context I do not see him as a guy that would just stick himself in concrete," said Steve Bell, a former Senate Budget Committee aide who is now with the Bipartisan Policy Center.

These Republicans will be sitting across the table from some experienced Democratic deal-makers, notably Senators John Kerry, a former presidential candidate, and Max Baucus, who has deep experience in taxes and healthcare benefits, which will dominate the talks. Meanwhile, House Democrat Xavier Becerra, a liberal stalwart, has urged members to keep an open mind.

Becerra and fellow House Democrat James Clyburn could be instrumental in building support in the liberal wing of their party for any potential deal.

The group's work will be getting underway against the backdrop of global market turmoil, a European debt crisis and rising concerns the U.S. economy could reverse its recovery from the deepest recession since the Great Depression.

And later this month, the Congressional Budget Office is expected to release its latest economic outlook and quantify its impact on Washington's deep budget deficits, which have been hovering around $1.5 trillion annually.

All these factors put pressure on the panel to produce.

Also working in the committee's favor is that $1.5 trillion in savings over 10 years is not insurmountable in the context of a $3.7 trillion annual budget.

Negotiations earlier this year led by Vice President Joe Biden have identified many possible ways to pare deficits.

So, if Republicans were to go along with modest revenue increases, Democrats might find it easier to say yes to equally modest savings to the Medicare healthcare program for the elderly, some of which already have been suggested by Obama.

But even if the super committee settles on around $1.5 trillion in new savings, it likely will not be enough to satisfy global financial markets demanding a more ambitious result -- as much as double that amount -- accomplished through long-term reforms of government benefit programs and a broad revamp of the U.S. tax code.

(Editing by Todd Eastham)

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Analysis: Uncertainty surrounds Italy's deficit-cutting plan (Reuters)

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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