Italian Prime Minister Silvio Berlusconi announced new measures worth 2.0 billion euros (2.6 billion dollars) to boost the economy and help the auto industry on Friday, but he tied the aid to keeping factories at home.
The package approved by the government Friday provides a 1,500-euro bonus for people trading in their old vehicle to buy a new one, alongside tax breaks on purchases of furniture and other household goods.
Other bonuses will apply for motorcycles and environmentally friendly vehicles, with the measures for the auto sector available through this year and worth 1.2 billion euros in total.
Berlusconi in turn called on the auto industry to keep its plants “in Italy, to invest in new products and to keep up payments to components suppliers.”
Such remarks risk getting caught up in a wider row about the risk of countries resorting to protectionist policies as they seek to rescue their ailing economies from the global slump.
On Friday, the Czech presidency of the European Union criticised French President Nicolas Sarkozy for saying French automakers should consider relocating back to their home base to create jobs there.
Berlusconi's cabinet also approved a sharp downward revision to its economic forecast for this year, predicting that gross domestic product would contract 2.0, making it the worst recession in more than 30 years.
The government's previous forecast made in September 2008 had been for the economy to expand 0.5 percent this year.
In November, the government launched a five-billion-euro package for 2009 to cope with economic slump but the opposition, unions and employers all criticised the plan as too modest to have any real impact.
Economic Development Minister Claudio Scajola said that Italy's auto fleet had the oldest average age in Europe and the bonus, aimed at vehicles older than 10 years, could cover up to 15 million cars.
Berlusconi said the government was also looking at another eight billion euros to cover benefits for workers laid off temporarily.
The global slump saw Italian new car registrations plunge 32.6 percent in January. Fiat, the leading domestic manufacturer, has warned of potentially huge job losses ahead.
Fiat boss Sergio Marchionne said last month that 2009 will be “the toughest year ever” for the industry and warned 60,000 jobs in Italy — where the industry employs 400,000 — could be at risk unless the government stepped in.
Union leaders rounded on the government recently as the package was being worked out, saying that while France was prepared to help its automakers with up to six billion euros, Rome was only willing to spend small amounts.
In January, Fiat said it would cut production in February and March after announcing a major tie-up with Chrysler and slashing its 2009 forecasts.
Some 5,000 workers at the company's Mirafiori plant in Turin will be idled in the last week of February and the first two weeks of March.
Production will also be halted for between two and four weeks at the Pomigliano, Cassino, Melfi and Termini Imerese plants, the company said.
All of Fiat's Italian plants were closed between mid-December and mid-January.
The government's ability to act decisively on the crisis is limited by the precarious state of the public finances, made worse as the economy falters, cutting revenue and increasing the need to spend.
In January, ratings agency Standard and Poor's warned that while it maintained its A-plus rating on Italy's long-term debt, the country's public deficit and total debt would widen.
S&P said it expected Italy's total public debt to grow from 107 percent of gross domestic product (GDP) in 2007 to 109 percent in 2009, a level at which the country would have difficulty sustaining its economy in a time of recession.
