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Italy moves closer to joining EMU

Italy's bid to sign up for the first phase of European monetary union passed another milestone yesterday when the Italian parliament passed an austerity budget designed to meet the tough convergence criteria for a single currency.

Romano Prodi, the Italian prime minister, said the budget would guarantee Italy a place among the first entrants of European Economic and Monetary Union (EMU).

"We have shown where we are going," Mr Prodi said on state television.

The controversial budget was passed at a highly unusual Sunday sitting of the lower house of parliament by 316 votes to two, with two abstentions.

The package agreed yesterday aims to cut 62,500bn lire (pounds 25bn) from next year's budget through measures which include an unpopular "Euro tax" and a new type of regional levy for companies.

The vote was boycotted by the Freedom Alliance, the centre-right party run by media tycoon Silvio Berlusconi, and the secessionist Northern League.

They claim the budget puts too much emphasis on raising revenue and not enough on cutting welfare spending.

Italy signalled its determination to be ready for the introduction of a single currency in 1999 when it rejoined the Exchange Rate Mechanism (ERM) last month.

Like sterling, the lira was ejected from a more rigid ERM in September 1992 after a wave of currency speculation. Britain, Sweden and Greece remain outside the currency grid.

Under a strict interpretation of the Maastricht Treaty criteria, countries must have been inside the ERM for at least two years in order to qualify for monetary union. Countries are also required to have a fiscal deficit of less than 3 per cent and total debt of less than 60 per cent of GDP.

Italy's debt-to-GDP ratio is more than 120 per cent while its fiscal deficit ratio is 7.1 per cent.

The budget is designed to move the fiscal deficit to 3.1 per cent next year, although doubts have been cast on the these claims by the International Monetary Fund, which last week said the ratio was likely to fall to only 3.75 per cent in 1997.

Separately, a poll in Denmark showed a rise in support for EMU, with 46 per cent in favour compared with 33 per cent two years ago.