Italy faces budget woes

In a report to the central bank on the state of the Italian economy, Mr Fazio stressed that without corrective measures, the Italian budget deficit would breach the three percent limit written into the European Union Stability Pact.

The pact enshrines the rules underpinning the euro currency.

The governor said GDP growth was slow and expected to mount to no more than one percent this year, and that industrial output was falling.

Turning to Prime Minister Silvio Berlusconi’s plans to cut taxes, Mr Fazio stressed that the additional resources necessary will have to be found somewhere.

Mr Berlusconi has said he wants to introduce two flat income tax rates of 23 percent and 33 percent, but has ruled out reducing health and welfare spending to finance the cuts.

Meanwhile, the opposition said Mr Fazio’s report was proof of the failure of Mr Berlusconi’s economic policies.

The Democratic Left, the largest opposition party, said that “Fazio said what we’ve been saying for a long time, that the public accounts are getting out of control”.

Democratic Left chief Piero Fassino said that “this is further confirmation that the Italian economy has stalled and that its competitiveness is being undermined”.

Daisy Party leader Francesco Rutelli said that “Fazio has confirmed that Italy is in a difficult situation. We accuse the government of failing to act in the interests of Italy’s economy, its families and its businesses”.

But the government denied that the budget deficit risked breaching the 3 percent ceiling.

Economy Minister Giulio Tremonti said that “Italy will make it this year like every year, respecting its pacts. Such forecasts always arrive at this time of the year and then Italy always pulls through”.

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