Pension reform vote soothes Italian markets

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The Italian government won a vote of confidence for its state pension reforms yesterday and has called two more votes for today in an effort to get its programme through parliament.

Reform of state pensions is at the heart of Italy's attempts to cut its enormous public sector debt, which at present levels would exclude it from participation in a single European currency.

The Prime Minister, Lamberto Dini, a former central banker, demanded the votes because financial markets were threatening another blitz on the lira and a collapse in Italian bond prices unless the government was seen to be serious about reforming the system.

Mr Dini won the vote by 284 to 147 with 148 abstentions. Paradoxically, another effect of passing the Dini reforms is to hasten the day of his government's demise and the onset of parliamentary elections. Mr Dini heads a cabinet of technocrats, whose task is to carry through basic economic measures before the main political parties once again contest the polls.

For that reason the former prime minister, Silvio Berlusconi, who wants early elections, decided not to obstruct the passage of the pension law even though the media magnate considers the measures inadequate.

In contrast, the leader of the left-wing Progressive group in parliament, Luigi Berlinguer, called the votes "distasteful but necessary". The Dini pension reforms constitute a watered down version of more radical proposals put forward last year to tackle the crisis in Italy's all but bankrupt state pensions system.

For years, the Italian trade unions and a well-organised pensioners' lobby fought off any adjustment to a generous arrangement under which some civil servants could retire in their early forties and payouts were a high percentage of final salary. If not reformed, the whole system could topple into bankruptcy, because existing entitlements are being paid for by working contributors whose own pensions may never be properly funded.

Faced with entrenched opposition, Mr Dini and his team were forced to renegotiate the terms of the deal with the unions, reaching agreement in early May. The revised package envisages saving over pounds 4bn each year over the next decade.