EU criticises Italian budget backtracking

(BRUSSELS) - The European Commission expressed its dissatisfaction on Friday at Italian backtracking on the detail in a 45.5-billion-euro ($65.6-billion) austerity package announced last month.

European Union economic affairs commissioner Olli Rehn's spokesman echoed growing concern among international partners that Italy is dropping some tough reforms demanded by the European Central Bank in exchange for propping up its national borrowings last month.

The cuts were approved by cabinet in an emergency meeting on August 12 in a bid to calm market panic but have still to be approved by parliament in the coming weeks.

Heated domestic political negotiations have already changed the initial plan.

"Of course we will wait for the final text to make a formal assessment," Amadeu Altafaj said of the ongoing parliamentary debate in Italy.

"However, we do not expect the agreed deficit targets to be called into question," he said, meaning a change to the headline figure would run counter to European Commission demands.

Even without altering the overall size of the targeted cuts, though, he added: "We are worried to see heavy reliance on the fight against tax evasion in the new proposal.

"The effectiveness of measures in this area... is always very difficult to assess.

"Growth-enhancing measures should also be more prominent in the next budget, for example further liberalisation efforts," the privatisation of public services and opening up of closed professions, Altafaj added.

ECB president Jean-Claude Trichet himself warned Italy on Friday that meeting deficit reduction targets was decisive for the country's credibility.

The ECB had to step in last month and buy tens of billions of eurozone bonds after investors fled Italian and Spanish debt and sent their borrowing costs to unsustainable levels.

It did so only after having sent Italy a list of budget reforms it considered essential.

But the Italian government withdrew one particularly disputed measure on pension reform -- removing the entitlement to count years in higher education or military service -- less than 48 hours after proposing it.

Amid disquiet within the ruling coalition, the government also said it was abolishing a temporary "solidarity tax" on high earners that had also upset billionaire Prime Minister Silvio Berlusconi.

It has given a further concession by reducing planned cuts in local government.