Italy gives first approval to balanced budget law

Italy's parliament on Wednesday gave initial approval to a new constitutional law that will prevent Italian governments from using debt to finance the deficit in a bid to rein in public finances.

The law, which is set to be given final approval next year, is part of a raft of planned initiatives aimed at calming market mayhem that has driven Italy's borrowing costs to record highs and set off alarm bells around Europe.

Minister for Parliamentary Affairs Piero Giarda said this was the "first concrete initiative" in parliament since Prime Minister Mario Monti, a former top European commissioner, took over from Silvio Berlusconi on November 16.

The text of the law, which amends the constitution, was adopted by Berlusconi's cabinet in September. It had been announced in July by former finance minister Giulio Tremonti as market pressure on Italy began surging.

The draft was approved by 464 votes in favour with 11 abstentions.

It needs to receive a second approval in the lower house and two more votes in the upper house as it includes a constitutional amendment.

The principle enshrined in the law can be overcome but only by an absolute majority in parliament and in case of a grave economic crisis, which would ease the rules on when exactly the government has to return to a balanced budget.

Italy is suffering from a colossal public debt of 120% of gross domestic product (GDP) and is aiming to restore budget balance by 2013.

This year the public deficit should be 3.9% of GDP, according to the last forecasts of the previous Berlusconi government.

Eurozone member states said in October they were all aiming for similar laws in line with demands by Germany, which adopted the law in 2009.

France has still not adopted the law as it requires a three-fifths majority in parliament and the left has refused to accept the legislation.

(Published by MSN Finance - December 1, 2011)