Berlusconi’s move came after European heads of state interrupted their summer vacations, scrambling for a consensus in a flurry of phone calls. But it remained unclear whether the package would be enough to ease the panic over Europe’s debt crisis that, along with fears of a slowdown in the United States, erased $2.5 trillion off global stock markets this week. European markets closed lower Friday after another volatile session.
The Europeans, analysts noted, were falling far short of the kind of financial shock and awe unleashed by Washington in 2008 to contain the U.S. financial crisis, expressing little political will to put up the kind of cash it would take to bail out Italy and troubled Spain should their plights worsen.
It brought into focus the stark options ahead for a group of 17 European nations that for years have sought to share one currency without making the politically hard decisions that would make German and Italian taxpayers, for instance, just as liable for the region’s collective debt as residents of, say, Virginia and California are to U.S. debt.
If Italy’s plan fails to calm markets, analysts warned that Europe’s only way to resolve the crisis may be through tough, bold steps to integrate more fully — or face the prospect of a messy breakup of the euro zone.
“This is about the future of Europe now,” said Peter Bofinger, an influential German economist. “If Italy blows apart, the [euro zone] blows apart. This isn’t like Portugal or Ireland or Greece. The consequences for Europe are now great. They have to, they must, act.”
Berlusconi, a leader plagued by sex and financial scandals who has warred with his finance minister over cuts, acted after Italy’s borrowing costs jumped higher than Spain’s on Friday. He laid out a reform plan aimed at balancing the budget a year early — by 2013 — and tackling the highly charged issues of welfare and labor reform.
It amounted to a recognition that an austerity plan passed by Rome fell short of investor hopes.
“We consider it appropriate to introduce an acceleration of the measures which we introduced recently in the fiscal planning law to give us the possibility of reaching our objective of balancing the budget early,” Berlusconi said, adding that finance ministers from the Group of Seven industrial nations would hold an emergency meeting in coming days.