Italian Prime Minister Silvio Berlusconi on Wednesday failed to issue growth-boosting measures demanded by European Union authorities ahead of the Group of 20 summit, raising further doubts about the government's willingness to pass economic reforms aimed at restoring investor confidence in the country.
Mr. Berlusconi's cabinet late Wednesday approved a plan to sell state property, slash red tape and roll out infrastructure projects, according to people familiar with the matter, in a bid to cut Italy's €1.9 trillion ($2.6 trillion) debt and revive economic growth.
The plan, however, doesn't include measures to address the chronic structural weaknesses—such as costly pension plans, heavy labor regulation and high taxes—that European officials and investors blame for Italy's economic stagnation, the people said. That means Mr. Berlusconi will head to the Group of 20 in Cannes, France, on Thursday without concrete measures to assuage the concerns of EU leaders.
It is also unclear whether Mr. Berlusconi can muster the political support to pass in Parliament the meager plan approved Wednesday. Earlier in the day, Italian officials drafted a government decree that would have implemented the measures with immediate effect, said the people familiar with the matter. By the time Mr. Berlusconi's cabinet convened in the evening, however, officials had shelved the draft. Mr. Berlusconi's foot-dragging is likely to erode support for his government and increase tensions with Italy's head of state, President Giorgio Napolitano, who has called for immediate reforms and wields the power to dissolve Parliament.
On Wednesday, Mr. Napolitano held meetings with lawmakers across the political spectrum to see if Mr. Berlusconi's majority has the political support to push tough reforms through Parliament.
Analysts interpreted the meetings as a sign that Mr. Napolitano might throw his support behind lawmakers who have called for a government of technocrats to replace the premier.
Mr. Berlusconi, however, has vowed to remain in office and has won several confidence votes in Parliament to prove he has a majority, albeit a slim one.
"The technical government option is what I think everyone, except Berlusconi, wants," said Duncan McDonnell, a political analyst at the Florence-based European University Institute.
Investors are shunning Italian bonds, concerned the country's rising borrowing costs will make it nearly impossible for it to pay down its debt, which is currently equivalent to 120% of GDP.
As pressure on Mr. Berlusconi mounts, his options are running out. Unions and left-wing lawmakers are strongly opposed to any attempt to revise Italy's restrictive labor laws, which make it nearly impossible to fire many employees.
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