Lack of confidence

As the Italian government feels increased pressure from eurozone partners and European institutions such as the European Central Bank (ECB) to get its debt under control, the country's largest trade union, the CGIL, called for a general strike Tuesday to protest pending austerity measures.

The union argues the 45.5-billion-euro ($63.9 billion) package of proposed spending cuts and new taxes would hit poor families especially hard and do little to stimulate the economy.

The eight-hour strike affected flights, trains and busses, and many government offices were closed.

Warning signs

The Italian parliament on Tuesday debated the austerity measures meant to restore confidence in the country's public finances. The center-right government put forward proposals to impose a wealth tax, raise the sales tax and make pension reforms. The sales tax would be raised from 20 to 21 percent under the proposed measures.

The proposals come a day after a high sell-off of Italian government bonds sent an "alarming signal," as Italian President Giorgio Napolitano put it, that markets were losing faith in Italy's inability to manage its finances and pay back its public debts.

The ECB was the main purchaser of the bonds, a move designed to protect Italy from the full force of doubts in the market.

However, Mario Draghi, Italy's central bank chief who will become head of the ECB in November, said the bank's willingness to continue purchasing Italian bonds "should not be taken for granted."

High stakes

The CGIL isn't alone in expressing its doubts over the soundness of the proposed austerity measures. On Monday, German Chancellor Angela Merkel said the situation in Italy was "extremely fragile" in talks with other members of her Christian Democrats party.

Deep political divisions in Italy have meant the austerity plans have taken on a number of different forms and utilized different approaches, leading to a final version that some fear was cobbled together too hastily.

Italy is the eurozone's third largest economy. Should the country require a bailout, it would be on a much larger scale than the bailouts of the comparatively small economies of Greece, Ireland and Portugal. This has led investors to place particular emphasis on how Italy responds to the mounting pressure to contain its debt crisis.

Tuesday's debate in Italy's Senate was due to be followed by a similar debate in the lower house. The austerity measures could be implemented by September 20.

Author: Matt Zuvela (Reuters, AP, dpa)
Editor: Martin Kuebler