8/13/2011

Austerity is Inevitable

Italy austerity taxes

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Pittsburgh, Pennsylvania – August 13 –

There are riots in Britain. It is my understanding that Britain has lifetime unemployment insurance. In other words, unemployment can be collected from teenage until death. If my theory holds, that situation will inevitably come to an end, if investors and credit rating companies have anything to do with it.

Unions have complained, but they are impotent in Italy.

New taxes, and austerity measures have passed in Italy. They still have to be approved.  Taxes and austerity measures were passed in Greece. Investors carried a big stick in both countries. Here’s what happened in Italy:

At an emergency evening cabinet meeting, the government adopted an austerity package worth 20 billion euros in 2012 and a further 25.5 billion euros the following year to bring the budget into balance in 2013.

The ECB [1] demanded accelerated deficit cuts from Italy as a condition for buying its bonds on the market after a sell-off sent Italian borrowing costs soaring and threatened to put the euro zone's debt crisis on a new, unmanageable plane.
[1] European Central Bank

Despite a huge public debt, Italy, the euro zone's third largest economy, had kept out of the crisis until last month when doubts over its slack growth and the government's ability to control finances triggered the selloff of Italian bonds.

"The austerity plan is not perfect but it's probably the best we could have hoped for in the current political situation with resistance from inside and outside the ruling coalition, and considering they had to re-formulate everything in a week," said Chiara Corsa, an analyst with UniCredit in Milan.

So, there is austerity, brought about by two main forces:

  • Investors
  • Credit Ratings

Complaints by unions don’t count.