“Save Italy”. The name chosen by prime minister Mario Monti for the austerity package announced on Sunday could have hardly been more telling. The indulgent days of Silvio Berlusconi’s Forza Italia are gone for good. Now the country has entered the age of Salva Italia.
Mr Monti’s package includes tax hikes and spending cuts between 2012 and 2014 worth €30bn. Only €10bn will be reinjected in the economy. The rest should ensure the country succeeds in balancing its budget by 2013, in spite of ailing growth and rising interest rates.
Mr Monti’s measures favoured tax hikes instead of spending cuts. There is a strong argument for shrinking the size of Italy’s gargantuan public sector, but tax rises have the advantage of being more credible and immediate in the eyes of the markets. Mr Monti was also right to opt for an increase in property taxes. In a country with rampant tax evasion, raising the income tax would have been seen as unduly unfair. Those hardest hit would have been those who actually pay their dues.