Berlusconi Ally Says Austerity “Failed,” Italy Must Cut Taxes

Former conservative minister blames Mario Monti’s “German” policies for Italy’s recession.

An influential member of former prime minister Silvio Berlusconi’s right-wing party and a leading critic of the incumbent government’s austerity policies argues that Italy should defy Germany and cut taxes to retain competitiveness relative to other members of the European single-currency union.

Renato Brunetta, the main economics spokesman for Berlusconi’s Il Popolo della Libertà and a former public administration minister, said in an interview with Reuters that was published on Tuesday that Prime Minister Mario Monti’s budget and economic policies have failed. “Putting our heads down and carrying on like this with a blood, sweat and tears economic policy designed by Angela Merkel,” the German chancellor, “doesn’t help anyone,” he said.

Berlusconi, who announced that he will stand for election again next year after his party withdrew its support from Monti’s technocratic cabinet this month, has similarly criticized the incumbent government for toeing the German line on fiscal policy.

He previously suggested that it would “not be the end of the world” for either Germany or Italy to leave the eurozone. In an interview with Canale 5 last week, he touted his willingness to stand up to Germany which is seen by many Italians as imposing unnecessarily drastic economic and fiscal reforms on their country. “I was one of the two, three most influential leaders in the European Council,” he said. “I continuously opposed German proposals and demands.”

Berlusconi was forced to resign the premiership in November of last year when Italy teetered on the brink of sovereign default. Monti subsequently enacted tough budget and pension reforms to mend the budget shortfall as well as labor market reforms although he had to tone them down under pressure from the left-wing Democratic Party and the nation’s powerful trade unions.

In his interview with Reuters, Brunetta argued that Monti had botched the pension reforms when he raised the retirement age but left thousands of early retirees without either a job or a pension. The labor market reforms, he said, didn’t actually make it easier to hire or fire a worker. But the most despised austerity policy has been a new property tax. “Monti did all this because he was forced to by German policies and in doing so, he delivered a hammer blow to the economy,” according to Brunetta.

Italy’s debt as a percentage of gross domestic product hasn’t come down yet while the economy is expected to contract 2.4 percent this year.

Brunetta said that a conservative government would reduce the debt, currently at 126 percent of annual economic output, with a combination of structural reforms, privatizations and asset sales.

It’s doubtful if Berlusconi will manage to return his party to government. Recent opinion polls put it behind the Democratic Party as well as the Euroskeptic Five State Movement led by comic Beppe Grillo, giving left-wing leader Pier Luigi Bersani the best chance of winning the prime ministership.