Italy’s Senate backs austerity plans

Italy’s Senate has approved a package of measures designed to cut the country’s deficit, a move that paves the way for a new technocrat-led government.

The senate voted 156 to 12 in favour of a package of measures to cut public spending and raise taxes. The opposition abstained. 

Silvio Berlusconi, Italy’s prime minister, has promised to step down once the package is approved. This is expected to take place on Saturday. The favourite to replace Berlusconi is Mario Monti, a former European commissioner.

Berlusconi has been under pressure from his eurozone partners and financial markets to get the package approved. Yields – the interest rate that investors demand to buy a country’s bonds – soared to record highs earlier this week as financial markets doubted the government’s ability to push through the package of cuts in the face of strong political opposition.

Yields on Italian government bonds fell slightly today on news that the senate had approved the package.

The cuts are designed to enable the Italian government to balance its budget by 2013. But the European Commission said yesterday that, even if the measures were implemented, Italy would still have a deficit of 1.2% in 2013.