Letta to push anti-austerity in Germany

2013-04-30 13:33
Italy's new Prime Minister Enrico Letta sits prior a confidence vote for the new government at the senate in Rome. (Andreas Solaro, AFP)

Italy's new Prime Minister Enrico Letta sits prior a confidence vote for the new government at the senate in Rome. (Andreas Solaro, AFP)

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Rome - Italy's new prime minister will face an early test of his mission to reverse Europe's austerity course on Tuesday as he meets German Chancellor Angela Merkel after vowing to stop a policy he says is killing his country.

Enrico Letta's first official trip abroad comes a day after the new PM said his coalition government would act fast to reverse austerity, in a hard-hitting inaugural speech watched closely by Italy's European partners - including Germany, the continent's austerity champion.

"Italy is dying from austerity alone. Growth policies cannot wait," he told parliament.

The leftist moderate, whose swearing-in ended a more than two-month stalemate after an inconclusive February election, promised to deliver results to the recession-hit country within 18 months or "take the consequences".

In Berlin, Letta will be welcomed with military honours before an afternoon press conference followed by talks and dinner with Merkel, who has championed deficit and debt reduction for beating the debt crisis.

He then goes on to Brussels to meet European Union President Herman Van Rompuy.

Back home, the upper house of the Italian parliament will debate Letta's programme on Tuesday morning before holding a confidence vote on the new government.

Lawmakers in the lower house backed Letta's cabinet by a vote of 453 to 153 on Monday after his speech.

Letta told the MPs the economic situation in Italy - one of the first countries to fall prey to the eurozone debt crisis - was "still serious" and that its $2.6 trillion debt "weighs heavily" on ordinary Italians.

But he also looked to Europe, saying it was suffering from "a crisis of legitimacy and... must become once more a motor of sustainable growth" - a reference to his aim to persuade Europe to reverse its disputed austerity policy.

Salary cuts

The 46-year-old from the centre-left Democratic Party said he wanted to deal quickly with the social fallout of Italy's longest economic slump in 20 years by tackling a jobless rate of 11.6% and regulating temporary job contracts.

He also said a controversial housing tax imposed by former Prime Minister Mario Monti would be suspended from June.

Letta said the political class must respond to a growing anti-establishment voice fuelled by anger over corruption and politicians' perks at a time of widespread financial difficulties.

The government's first act would be to cut the salaries of ministers who are also members of parliament and are therefore eligible for two salaries, he said.

The markets reacted favourably to the speech, with Milan stocks up around 2%.

Investors appeared buoyed by the new leadership, with Italy performing well at its first market test, paying significantly lower rates to raise €6bn at a five- and 10-year bond auction.

The euro was mixed in Asian trading Tuesday at $1.3087 from $1.3097 in New York on Monday while it was higher at 128.23 yen against 128.01 yen in US trade.

Dropping confidence

But official figures also showed that business confidence dropped sharply this month.

And ratings agency Standard & Poor's kept Italy's sovereign debt rating at "BBB+", following suit after Moody's kept its rating at "Baa2" on Friday - two notches above junk grade - with a negative outlook.

Italy's debt will rise to 130.4% of gross domestic product this year, while the economy will shrink 1.3%, according to official forecasts.

Analysts say the coalition is likely to last long enough to push through key reforms but may be brought down by sparring parties within a year or two.

Read more on:    eu  |  enrico letta  |  angela merkel  |  herman van rompuy  |  italy  |  europe debt crisis

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