Italy set to adopt austerity budget

Italian finance minister Giulio Tremonti during Thursday’s austerity budget debate in the Senate [EPA]

European finances are under scrutiny once again with Italy set to adopt an austerity budget intended to stave off Greek-style financial collapse and European banks bracing for “stress test” results.

The lower house of the Italian parliament is set to vote on Friday in favour of a $99bn package of cuts over the next four years.

Italy’s upper house, the Senate, has already approved the measures, which advocates say are necessary for the financial health of the eurozone’s third largest economy.

Italy’s debt is the second largest in Europe after Greece, and there are fears the declining Italian economy could implode without a reduction of public debt and the introduction of reforms to boost economic growth.

The austerity budget would mean severe cuts to public services, while the government would sell off their stakes in state-owned companies.

Agreed consensus

Al Jazeera’s Sonia Gallego, reporting from Rome, said there was a general consensus among politicians that austerity measures were necessary.

Italy raised 2.97bn euros ($4.2bn) on Thursday by selling 15-year government bonds, but the country is under pressure from the International Monetary Fund (IMF) to ensure a “decisive implementation” of spending cuts.

“No one writes a budget such as this without wanting the common good,” Italian finance minister Guilio Tremonti told Al Jazeera. “They’re looking at the government, both the majority and the opposition, who often differ. But we are not divided now.”

While economists and politicians approve of the austerity measures, they are not playing so well with the Italian public.

There are concerns working families could suffer if drastic cuts are made to health, education and welfare services, while many blame Italian Prime Minister Silvio Berlusconi for not taking action earlier.

Bank ‘stress tests’

The state of Europe’s finances face further scrutiny later on Friday with the publication of the results of stress tests of 90 eurozone banks by The European Banking Authority (EBA).

The tests were introduced in the aftermath of the 2008 financial crisis to check banks have sufficient capital to withstand difficult economic scenarios.

Some say the tests are not strict enough. Last year, Allied Irish Bank (AIB) was deemed to have passed the EBA tests just months before it needed a government bailout. 

“Given the current problems in Europe it is questionable how valuable these stress tests will be,” said Michael Hewson, market strategist at CMC Markets.

“If they are too weak they will lack credibility, just like last year’s did, and if they reveal too many problems that could well set off the contagion so many European leaders fear,” said Hewson. 

The EBA however want the stress tests to include enough details about the risks to which individual banks are exposed so that the banks’ creditors know the risks they are running.