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Italy Announces Major Spending Cuts, Tax Increases With PM-Europe-Currency Crisis

September 17, 1992

ROME (AP) _ The government today approved $33 billion in spending cuts and $39 billion in new taxes to rescue an Italian economy plagued by huge deficits and a tumbling lira.

The announcement came the same day that Italy pulled its currency out of the European currency system, turning the fate of its lira over to market forces.

Italy has been desperate to reform its economy to put it more in line with the political and economic unity envisioned by the Maastricht European union treaty.

The Senate debated the Maastricht treaty today and was expected to approve it. That would give a boost to treaty-backers in France, where a referendum on the pact is set for Sunday.

In a further move to handle budget deficits predicted to approach $150 billion, the government adopted a decree to reform state pensions and bail out the country’s near-bankrupt social security system.

The decree would block all early retirements through the end of 1993, abolish November’s indexing of pensions to inflation and raise the mandatory retirement age to 65 from 62 over the next decade, said a spokesman for Labor Minister Nino Cristofori. The official spoke on condition of anonymity.

A decree law goes into effect immediately and requires parliamentary approval within 60 days.

The economic package was announced by Agriculture Minister Gianni Fontana after a Cabinet meeting.

The austerity measures would hit Italians already stricken by a round of tax increases this summer totaling $12.8 billion.

On Sunday, the government devalued the lira by 7 percent after speculators staged a prolonged assault on the currency. Two weeks ago, the central bank had boosted interest rates to 15 percent - the highest level in six years.

The new taxes and spending cuts could put Socialist Prime Minister Giuliano Amato under increasing pressure from the public, but in the long run may shore up Italy’s economy enough to conform to the strict rules of Maastricht.

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