Italy austerity drive may backfire

Italy's austerity drive, enacted in exchange for European Central Bank bond purchases driving down borrowing costs, may backfire as it chokes the economic growth needed to ease Europe's second-biggest debt burden. Prime Minister Silvio Berlusconi's Cabinet approved €45.5 billion (Dh240.4 billion) in deficit reductions in Rome on August 12, the nation's second austerity package in a month, to balance the budget in 2013 and convince investors that Italy can trim debt of about 120 per cent of gross domestic product. That's the biggest ratio in Europe after Greece, whose fiscal woes sparked the sovereign crisis last year. While the back-to-back packages aim to eliminate Italy's budget gap, spending cuts and tax increases risk damaging the economy at a time when the global recovery is stumbling.