Declining household spending to rising unemployment

Only five months before an election to replace the emergency government of Prime Minister Mario Monti installed one year ago to tackle a dramatic debt crisis, recession-hit Italy faces an array of economic and political uncertainties.

The emergency cabinet has succeeded in bringing down borrowing costs, which had soared during the rule of Monti’s predecessor Silvio Berlusconi, by pushing through a series of austerity measures.

Negative economic indicators, from declining household spending to rising unemployment, have shown the short-term effects of what the Italian premier, an economist and a former European commissioner, called "a bitter medicine to swallow, but that must be done for the future generations."

Last week, the government had to agree on a substantial rewrite of a package of budget measures after it was sharply criticized by business associations and consumers in raised evidence that increasing value-added tax (VAT) will further depress the recession-hit economy.

After some 1,600 law amendments were presented by lawmakers, the biggest change now is the government will scrap a 1-percent cut in the two lower bands of income tax as well as the planned reductions in tax deductions for the current tax year.

A draft bill seeking to cut expense in politics was rejected by parliament three times before winning the lower chamber approval on Friday.

Unemployment has hit nearly 11 percent, the highest since monthly records began in 2004. Ordinary Italian households, who had suffered badly in the economic recession, are starting to feel the pinch with more and more people out of job, a politician said.

Voters’ anger and disillusionment with traditional mainstream political parties that are also marred by scandals have manifested themselves in the Sicilian elections, a vote seen as a test of popular sentiment before the national polls on April 7-8.

Voters in the regional polls abandoned the traditional center-right party of former Prime Minister Berlusconi and the anti-establishment 5-Star Movement became the top vote-getting party. The regional polls also saw a very low turnout of 47 percent, which was registered at 67 percent in 2008

In addition, opinion polls showed the 5-Star Movement has climbed to the second place while some half of Italians said they were undecided about how to vote or said they would abstain from the general elections, which are crucial both for Italy and the whole euro single currency region.

Meanwhile, an electoral law to replace the current one criticized for distancing politicians from voters is being held up by disagreements over the choice methods of lawmakers and the bonus that top vote-getting party would obtain to build a majority.

The Monti unelected cabinet is supported by center-left Democratic Party (PD) led by Pier Luigi Bersani, center-right People of Freedom (PdL) founded by Berlusconi and centrist Union of the Center (UDC) of Pier Ferdinando Casini.

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