Italy slashes 4.2 billion euros from budget

The Italian government on Monday slashed 4.2 billion euros from its budget in a bid to avoid a planned hike in value-added tax.

"The total reduction in public spending is 4.2 billion euros ($5.5 billion), an amount that will avoid the raising of the VAT by two points that was set for October," Prime Minister Mario Monti said after a six-hour cabinet meeting.

The government decided in December to raise the VAT from 21 to 23 percent, but has since deemed that such a move would aggravate the recession that began late last year.

The government predicts that the economy will shrink by 1.2 percent this year.

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