Italy approves austerity package to calm investors

ROME (AP) – Italy cleared a euro70 billion ($99 billion) austerity package on Friday to reassure nervous investors that the eurozone’s third-largest economy will not succumb to the debt crisis.

Berlusconi’s government fast-tracked approval of the package measures - initially set for later this summer – and increased their scope after markets plummeted this week on worries over the country’s financial stability.

Italy’s future is crucial to Europe’s hopes of surviving the debt crisis because the country would be far too expensive to bail out.

The lower house of parliament passed the austerity measures by a vote of 314-280, hours after Premier Silvio Berlusconi’s government survived a confidence vote. The package was approved by the Senate on Thursday.

“Italy is stronger after the approval of these measures even if unknown factors of the economic crisis remain,” Berlusconi was quoted saying by the LaPresse news agency. He pledged economic reforms in the next two years, and urged the opposition to work with the government to achieve them.

The measures were approved as five Italian banks announced they had passed European stress tests. Both moves came after the markets closed, however, so their impact on the markets can only be measured next week.

Amid the uncertainty, traders had been cautious in the run-up to the vote. The Milan Stock Exchange’s benchmark FTSE MIB closed down 1 percent to 18,450.45, and spreads on 10-year Italian bonds versus the German bund touched 300 points – near a record on Friday.

“The measures are necessary,” Stefano Folli, a leading political commentator, told The Associated Press. “They are not sufficient because Italy needs to reform structurally.”

The fact that bond spreads remained high on Friday showed that the markets still were not fully confident, and were waiting for more from the government, he said.

“It is necessary to put together a radical and incisive program of reforms, very rapidly. This is what the government needs to focus on, if it is capable, and if not another government needs to do it.”

Berlusconi, who remains under pressure from the opposition to resign, has been criticized for remaining out of the public eye at a time of crisis. He showed up Friday for the vote of confidence, however, his first public appearance in about a week.