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'Salva Italia'

December 8, 2011

In his bid to "save Italy" Italian Prime Minister Mario Monti is seeking both international endorsement for his new round of austerity measures. But first, he has to drum up support on the domestic front.

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The Bank of Italy in Rome
Italy's key borrowing rate has spiked in recent weeksImage: dapd

As leaders head to Brussels for the "do or die" economic summit, new Italian Prime Minister Mario Monti has emerged from a week of pulling out all the stops in trying to sell his package of economic reforms at home.

After much anticipation, Monti's "technocrat" government of economists and experts presented to Italian parliament, the Senate and the press its first package of reforms aimed to slice 30 billion euros ($40.2 billion) off the Italian deficit and stimulate the country's stagnant economy.

Monti dubbed the package "Salva Italia" - "Save Italy" - appearing on the popular "Porta a Porta" television show where his predecessor Silvio Berlusconi often sold his electoral plans to the Italian people. The new leader warned viewers that Italy would no longer be able to pay public sector salaries or pensions if it didn't accept the package.

Mario Monti
Mario Monti unveiled his new austerity package this weekImage: dapd

In the decree are a hike in the age of retirement for women to 62 and men to 65; a freeze on indexing for pensions above 1,000 euros; the reintroduction of a first-home tax that Berlusconi cancelled four years ago; an increase in sales tax; a new tax on luxury goods such as cars, boats and planes; and a one-time 1.5 percent fee for tax evaders who brought their money back into Italy last year as part of a Berlusconi amnesty.

Before presenting the package to the Senate and parliament, Monti called a special news conference with the foreign press - a clear move to try to show the international community that Italy is finally getting its financial house in order before heading to the EU financial summit.

Mixed reaction to Monti's package

Monti, who has the near impossible task of cutting costs while avoiding further strangling economic growth, calmly but persistently defended his government's economic package, promising "rigor, fairness and growth."

Many observers, however, say the package may be strong on rigor, but it is very weak on fairness and incentives for growth. A glaring exclusion from the package is cuts to politicians' salaries - the highest in Europe and a source of great resentment among most Italians. Also missing is any serious attempt to liberalize the rigid Italian economy and open up caste-like professional associations that protect everyone from taxi drivers and owners of newspaper stands to pharmacists and notaries. The almost medieval associations are renowned for blocking competition and freezing out young people, 30 percent of whom are unemployed in Italy.

A shiny yellow Lamborghini
There will be a new tax on luxury brands such as carsImage: DW

Giuseppe Ragusa, professor of economics at Rome's Luiss University, says Monti's government will have to take on the professions if Italy's economy is to grow.

"The problem with the professional castes is the negative effect on the economy," says Ragusa. "Workers enter into the profession when you are already old. In other parts of the world, when you're 50, 55 you are ready to do other activities. Here we have a system [where] people reach the top of their profession when they're behind their game."

A survey conducted by the IPSO organization for the Corriere della Sera newspaper this week found that the vast majority of Italians (96 percent) said they agree with measures aimed at taxing the rich, such as the luxury goods tax. Only 39 percent like the pension changes, 35 percent agree with plans to reinstate a tax on primary residences and just 30 percent approve of plans to increase sales tax by two percentage points.

The poll also showed 70 percent of people agree with Monti's measures against tax evasion, which include a ban on cash transactions of more than 1,000 euros and the use of traceable electronic payment in public administration.

Italy's unions call for two nationwide strikes in protest

After initial silence, Italy's major unions have called a half-day private sector strike for December 12 and a full day public sector strike a week later. It's meant to protest the changes to the pension system and the low extra fee of 1.5 percent on money brought back into the country last year. Unions would like the fee to be raised to 3 percent, arguing the amount would allow more pensioners to have their monthly payments indexed to inflation.

Protesters march against the austerity package
Unions have organized another round of strikesImage: dapd

Despite the coming strikes and low approval ratings of much of what is in Monti's decree, James Walston, professor of politics at the American University in Rome, says for now Italians will likely accept the new measures.

"The possible consequences of not doing the reforms are so desperate that Italians will accept them," said Walston. "It's not that Italy will come out next year with a bright and shiny economy, but it will survive because the consequences of not going through some of these reforms are too dreadful to think of."

Italian support for Monti declining

However, what's not yet a given is if Monti will be able to shore up enough support among a very fractious parliament to pass them, says political commentator and blogger Mario Adinolfi.

"I think this government is very, very weak," he said. "And I don't think that a government without democratic legitimacy can do what Italy needs. We risk losing in a year with this technical government, and we could find Italy in a worse situation."

Indeed, Monti's popularity has already dropped from 74 percent, when he took over from Berlusconi, to 63 percent. But given how lightly Monti is treading on the country's richest, he's clearly trying to keep the center-right members of parliament happy for now.

However, these reforms are just a first round - and their purpose, say observers, is more aimed at reassuring the rest of Europe that Italy won't default than addressing all of the country's economic problems.

And despite what observers like Walston say are the inequities of this first round of cuts, Italy will have to accept them.

"It's self-preservation. If we don't go through with at least some of these reforms, life for ourselves and our children will be bleak, a lot bleaker that it is today."

Author: Megan Williams, Rome
Editor: Nancy Isenson