Monti takes Italy's austerity plan to lawmakers

December 5, 2011 - 10:33 AM
Italy Netherlands Financial Crisis

Italian Premier Mario Monti waits to meet his Dutch counterpart Mark Rutte at the Chigi Premier palace in Rome, Monday, Dec. 5, 2011. Monti takes a package of austerity and growth-boosting measures to a skeptical Parliament on Monday as Europe enters a crucial week aimed at saving the euro. (AP Photo/Pier Paolo Cito)

ROME (AP) — Italian Premier Mario Monti has acknowledged some of the euro30 billion ($40.5 billion) in spending cuts and tax hikes his government has approved may aggravate a looming recession in Italy but says the alternative would have been becoming too much like Greece.

Monti spoke to reporters Monday before heading to Parliament, where he must persuade skeptical lawmakers that his new plan to cut spending and boost growth will return Italy's ailing economy to health.

Monti warned that more financial reforms were on the way, including opening up Italy's rigid labor market and reducing the duplicate functions of provincial governments. Those measures weren't included in the emergency decree passed Sunday by the Cabinet as Europe enters a crucial week for saving the euro currency.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

ROME (AP) — Italy's new premier must try to persuade a skeptical Parliament that his new plan to cut spending and boost growth will return Italy's ailing economy to health as Europe enters a crucial week for future of the euro currency.

Premier Mario Monti, an economist, is to brief both Parliament chambers Monday on the package, which includes euro30 billion ($40.5 billion) in spending cuts and tax hikes and euro10 billion ($13.5 billion) spent to boost Italy's anemic growth.

His government agreed Sunday to slap taxes on primary residences and luxury goods like yachts, expensive cars and private airplanes, increase the age at which retirees can draw full pensions, trim the cost of Italy's political class and give incentives to companies that hire women and young workers.

The package, passed as an emergency decree, takes immediate effect but Parliament must still approve it within 60 days.

Unions blasted the pension reform as "socially unbearable," and politicians on all sides said the measures were severe and that they weren't yet convinced. But many appeared resigned to "holding our nose and voting," as Maurizio Sacconi, a labor minister under ex-Premier Silvio Berlusconi, put it.

"We still aren't convinced, especially with regard to women," said Pierlugi Bersani, head of the center-left Democratic Party, noting that if women take time off to raise children they will have to work well into old age to meet the seniority requirements to draw a pension.

Markets appeared to welcome the measures: The yield on Italian 10-year bonds was down 0.21 percentage points at 6.35 percent Monday morning, and the Milan Stock Exchanged opened in positive territory, with banks benefiting the most.

Olli Rehn, the European commissioner for economic and monetary affairs, welcomed the package as "a very important step to shore up the public finances and support economic growth, while preserving social equity and fairness."

He said the "timely and ambitious" measures gives a much-needed new signal of economic decision-making.

Monti, a former EU commissioner, has been under extreme pressure to come up with speedy and credible measures that will persuade markets to stop betting against the common currency. Italian borrowing costs have spiked since October, which could spell disaster if Italy is unable to keep up on payments to service its enormous euro1.9 trillion ($2.6 trillion) debt, which is equivalent to 120 percent of its GDP.

Italy needs to refinance close to euro200 billion ($270 billion) of that debt by May.

Unlike Greece, Portugal and Ireland, EU nations that got bailouts after their borrowing rates skyrocketed over 7 percent, Italy is the eurozone's third-largest economy and considered to be too big to bail out. An Italian default would be disastrous for the 17-member eurozone and would have damaging consequences throughout the global economy.

On Friday, eurozone leaders will meet at a critical summit aimed at preventing the collapse of the common currency; expectations are growing that they will agree to a tighter integration of the 17 EU countries that use the euro.

Monti said Sunday that his new measures were designed to be as fair as possible so the sacrifices are equally shared; he himself said he would renounce his own salary as premier and economy minister.

The measures include a 2 percent increase in value-added tax from the second half of 2012 from 21 percent to 23 percent.

Other taxes include a new tax on first homes to replace one annulled by Berlusconi, and new taxes on boats over 10 meters (30 feet) long, luxury cars and private helicopters and planes. The measures left out any income tax increase on high earners, which had been opposed by Berlusconi's conservatives.

At the same time, the measures cut the tax on the cost of employment, give fiscal breaks to companies that invest to grow their businesses and increase investments in local public transport.

At a press conference, Labor Minister Elsa Fornero choked up when she was to reveal the pension reform includes a hold on inflation adjustments for larger pensions, an indication of the psychological difficulty the reform has had even for those crafting it. Monti had to finish her presentation.

The measures raise the pension age to 66 years for men in 2012 and for women by 2018, and also increases to 42 years and one month the years of service for a man to retire with full benefits, 41 years and one month for a woman.

Unions and center-left politicians have been particularly critical of the pension measures, saying certain classes of workers, including those who do physical labor, shouldn't be forced to work extra years.

"It is not easy, especially because these cuts hit heavily on the pensions," conceded Italian worker Massimo Gatti in Rome's historic center Monday. "Let's just hope we can resolve the problem, and above all save Italy."

The right-wing Northern League opposed the new measures, but it alone doesn't have the numbers to decide the outcome. The League went into the opposition for Monti's government, which was formed in November after markets lost confidence in Berlusconi's ability to push through necessary fiscal reforms.