Monti: Italy must stop being Europe's weak link

2011-11-17 19:01

Rome - Italian Prime Minister Mario Monti on Thursday outlined his government's programme - focussing on eliminating the budget deficit in 2013 and stimulating economic growth, including through changes to the country's rigid labour market.

"We must overcome the situation in which Italy is the weak link of the chain in Europe," Monti said in a speech delivered before the upper house of parliament, the Senate, ahead of a confidence vote that he is widely expected to win.

"With the reforms the spread will narrow," Monti said adding: "The choices made by investors who buy public debt are guided by their expectations on what [the economy] of Italy will be like in 10 and 20 years time."

Monti was referring to the recent spike in Italy's borrowing costs and market doubts over the country's credit-worthiness. These have pushed to more than 500 basis points the spread between the premium demanded by investors for Italian government bonds compared to Germany's.

Monti said sacrifices would be necessary but that the "distribution of sacrifices would be a fair one".

At one stage the new premier was interrupted by applause. "Don't applause, listen!" Monti said.

Monti said his government would aim to eliminate Italy's budget deficit by 2013, a pledges first made in recent months by former prime minister Silvio Berlusconi.

To achieve this, Monti indicated that further cuts to state spending would be required, including to public administration costs, which the premier said would result in the scrapping of the country's more than 100 provincial government entities - an unkept election promise made by Berlusconi.

Monti said his government would also reform Italy's "inequitable" pension system, which currently allows some people to retire early.

Tax on real estate

In his 45 minute-speech, Monti offered some specific examples of the measure that the new government is considering.

Among these was the need to introduce fiscal reforms, including the possible introduction of a tax on real estate, describing the current absence of a tax on first homes as an "all-Italian anomaly".

The government would also step up efforts to combat tax evasion, which Monti said amounts to "almost one fifth" of the country's gross domestic product.

The premier's speech came ahead of a confidence vote in the Senate scheduled for later on Thursday. A similar vote is expected in the lower-house Chamber of Deputies on Friday.

Italy's two biggest political parties - Berlusconi's conservative People of Freedom party and the centre-left Democratic Party - have both said they will back Monti. A centrist grouping has also said it will back the former European Union commissioner.

Monti's cabinet, which consists mostly of academics and experts and contains no political party representatives, was sworn in on Wednesday.

Monti, a respected economist, also holds the post of interim Economy Minister.

His appointment has been welcomed by Italy's main eurozone partners, German and France, as well as the EU executive in Brussels.

"You [Monti] have taken office at a difficult time for your country as well as for the eurozone in general, but also amid great hopes and expectation," German Chancellor Angela Merkel said in a message to the Italian premier.

EU President Herman Van Rompuy said he planned to meet Monti in Brussels nest week.

"I expressed the EU's full confidence on the Italian capacity to overcoming its current situation and to fully contribute to solving the euro area financial crisis," the EU president added.

- SAPA