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ECB demands that Italy plough ahead with tough austerity plans

Silvio Berlusconi has been forced to drop some plans in a bid to win political support – but Jean-Claude Trichet isn’t too pleased.

Image: Jacques Brinon/AP

THE ITALIAN GOVERNMENT has received a stern warning from the head of the European Central Bank, Jean-Claude Trichet, who urged the country to plough ahead with its tough austerity plans.

Italy’s Parliament is preparing to take up approval of the package of spending cuts and new taxes which Berlusconi promised will add up to a €45.5 billion austerity package.

Premier Silvio Berlusconi is caught between trying to placate allies and satisfying both nervous markets and worried European Union officials.

But every few days has seen some measures — including new levies on high-earners and reform of a generous pension system — dropped in a bid to appease coalition partners.

With Italy’s uncertainty, Trichet urged Rome to keep to its word and push the package toward completion.

“It is essential that the target which was announced to diminish the deficit will be fully confirmed and implemented,” Trichet said at an annual economics forum at a Lake Como resort.

“This is absolutely decisive to consolidate and reinforce the quality and the credibility of the Italian strategy and its credit worthiness.”

The outgoing central banker deemed as “extremely important” all measures to improve the “flexibility” of Italy’s economy – going against industrialists and union leaders, who have denounced the austerity plan as relying too much on budget cuts without any effort to stimulate the ec economy.

But the ECB’s own policies were being taken to task on the sidelines of the annual Ambrosetti forum.

“We need more stimulus, we need a weaker euro,” which could spur exports, said New York University economist Nouriel Roubini. “You can’t just talk about austerity.” He urged the ECB to “at least send a signal there is going to be monetary easing” soon.

Asked by AP to respond to Roubini’s criticism, Trichet declined to comment, saying he wouldn’t talk about matters related to policy.

Italy got a boost last month by the ECB when Rome’s borrowing costs dipped, thanks to the ECB’s programme of buying its bonds on the second-hand market.

Italy’s foreign minister Franco Frattini today told reporters that his government would demand that the ECB continue the programme.

More: Italy austerity measures: Government “puts its hands into the pockets of Italian people” >

Read: Berlusconi: ‘Italy makes me feel like puking’ >

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Associated Press

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