CORRECTED: Monti launches radical reforms for Italy

18th November 2011, Comments 0 comments

Prime Minister Mario Monti laid out radical economic reforms on Thursday aimed at cutting Rome's huge debt mountain, boosting growth and preventing Italy from dragging down the eurozone.

Italy must stop being considered Europe's "weak link," he said as he announced austerity measures which would be balanced by "growth and equity" to help lift Rome out of the eurozone crisis and affirm its place in the eurozone.

The senate overwhelmingly backed Monti's government in a confidence vote Thursday and the new prime minister was expected to receive similar support from the lower chamber on Friday.

As well as planned cuts, Italy must "invest in its young and talented" and "tackle unfair privileges" enjoyed by certain sectors of society, Monti said.

Monti, who is racing to implement initiatives demanded by Europe, including a pensions and labour market overhaul, told Italians fearful of losing their sovereignty that the reforms were not being "imposed by external forces."

"It's not a case of them on one side and us on the other. We are Europe."

"The future of the euro also depends on what Italy will do in the next few weeks," he said.

Monti agreed with German Chancellor Angela Merkel and French President Nicolas Sarkozy, in phone talks, on the need to accelerate EU measures "to assure the eurozone's financial stability and growth."

Monti explained his plans "to restore market confidence and address Italy's economic situation," according to a joint text issued after their talks.

Before the promised reforms can be set in stone, the new cabinet faced a confidence vote in the Senate late on Thursday, and the lower house on Friday.

Monti, who replaced the billionaire media mogul Silvio Berlusconi, is expected to win both votes easily. But he could face a political backlash when he begins implementing the painful and delayed economic reforms.

While he has won endorsements from all of Italy's main political forces so far, the economist faces a major challenge in steering a course through a fractious political world, with intense sniping from Berlusconi allies.

Thousands of students took to the streets in Italian cities ahead of his speech. In Milan they threw flares at riot police during protests against a technocratic government they fear will act in favour of fat cats and bankers.

The soft-spoken Monti appears, however, to have already garnered the support of more than half of Italians, according to a poll by IPR Marketing.

The inclusion of key pension and labour reforms sought by the EU in Italy's crisis game plan is expected to reassure markets.

"We need measures to make the economy less fossilised, help new industries grow, improve public services and favour youth and female employment," he said.

"If we fail, if we don't carry out the necessary reforms, we will also be subjected to much harsher conditions," Monti warned.

Economics professor Giuliano Noci said the programme "includes everything one could imagine carrying out in Italy and would allow -- if implemented -- a truly great revival of the country."

The technocrat faces his first international test next week, when he is expected to travel to Brussels, Berlin, Paris and London, it said.

Monti said he had been in "intense contact" with many heads of government to ensure Italy an "assertive presence in Europe" and "psychologically and politically reposition our country" on the international scene.

Fitch ratings agency said there was "a window of opportunity for the new Italian government to generate a positive surprise" and "break the negative market dynamics and shift bond yields towards a more sustainable level."

But it warned: "Italy is likely already in recession" and the cabinet's task has been made "more difficult" by the downturn in activity across the eurozone.

The International Monetary Fund (IMF) announced it would send a monitoring team to Italy this month at the invitation of the Italian authorities.

The rate on Italian 10-year government bonds has hovered around the 7.0-percent warning threshold that set off alarm bells in Europe and beyond, but dropped down to 6.84 percent following Monti's speech.

Milan's stocks, however, closed down, in line with other European markets.

Italy has to issue 440 billion euros (about $590 billion) in debt next year.

The Italian Banking Association (ABI) said Thursday it will back a "Bond Day" when Italians can help their country ease its debt mountain of 1.9 trillion euros ($2.6 trillion) by buying debt commission-free.

Despite a 10-year stint in Brussels, Monti has never held office in Italy but has already shown his mettle by insisting his government has to stay in power until 2013 -- the scheduled date for the next general election.

Berlusconi, who has vowed a comeback, bowed to intense market pressure and resigned on Saturday to cries of "Buffoon!" as Italians danced in the street.

© 2011 AFP

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