Italy’s Main Political Parties Hold Fire on Monti’s Emergency Budget Plan
Italy’s main political parties are holding their fire on the government’s 30 billion-euro ($40 billion) austerity and growth plan, suggesting they won’t derail measures Prime Minister Mario Monti says are needed to save the nation and the euro.
Monti appealed to lawmakers for support yesterday when he presented the plan to Parliament in Rome. Investors gave their backing, with Italian bonds gaining the most in almost four months and the yield difference with German bunds falling below 400 basis points for the first time since Oct. 31.
“The situation is extremely serious and the government must respond with urgency and determination” Monti told the Chamber of Deputies yesterday. “The measures, at times painful, that we have put forward contain the seeds that will design the Italy of our children, a serious Italy, a European Italy.”
Monti, in office less than three weeks, offered a sweeping budget plan aimed at raising revenue and boosting the country’s anemic growth to persuade investors Italy can tame the region’s second-biggest debt and avoid following Greece, Ireland and Portugal in seeking a bailout. The premier warned that failure to pass the plan could lead to Italy’s “collapse” and threaten the survival of the single currency.
The yield on Italy’s benchmark 10-year bond fell eight basis points to 5.86 percent as of 12:29 p.m. in Rome, after declining 73 basis points yesterday to 5.95 percent, the lowest close since Oct. 27. The spread with German bunds narrowed 12 basis points to 362 basis points.
Monti, a university professor and former European Union commissioner, leads a so-called technical government and has no political base in Parliament. The main parties offered muted criticism of parts of his plan, with only the Northern League, former Prime Minister Silvio Berlusconi’s coalition ally, and the small Italian Values Party threatening to oppose it.
“Italian politicians are aware that they would earn international opprobrium if they did not give the Monti plan some chance to succeed,” said Stephen Lewis, London-based chief economist at Monument Securities.
The package is “sufficiently bold” to ensure Italy meets its balanced budget target in 2013 and will put the nation’s ratio of debt to gross domestic product, at 120 percent, on “a downward trajectory very soon,” UniCredit SpA economists Chiara Corsa and Loredana Federico, both based in Milan, wrote in a note to investors today.
Monti’s Cabinet passed the package by decree on Dec. 4, meaning the plan takes effect immediately and Parliament has 60 days to approve the package for it to remain in effect. Both houses of Parliament will vote before the Christmas recess.
About three out of four Italians think Monti’s plan “is unfair” and “could have been done in a different way,” according to a poll by IPR Marketing. Still, more than half of those surveyed said Parliament should approve the package, IPR said in an e-mailed statement today.
“Italians seem to be very rational in this particular moment,” said Antonio Noto, director of Rome-based IPR. “They haven’t been dragged to emotional reactions” and “acknowledge merits and faults of the package, signaling they perceive the seriousness of the situation and are ready to accept unshared sacrifices in the hope that Italy will save itself.”
This “government is sustained by a strange parliamentary majority of political adversaries who will return to being adversaries in the next election,” said Dario Franceschini, parliamentary leader of the Democratic Party. “The reaction of the spread shows with the arrival of these measures you can once again believe in the capacity of Italy.”
The Democratic Party, the biggest party in parliament, would prefer to have a more “gradual” overhaul of the pension system and more measures to tax wealth, Franceschini said.
Monti’s plan includes elements that both appease and anger the main parties. The Democratic Party is concerned about a pension reform that will raise the retirement age for many workers, end cost-of-living adjustments on most pensions and make payouts based on contributions rather than salary levels at the time of retirement.
“These are arguably the most ambitious measures,” Vladimir Pillonca, an economist at Societe Generale in London, wrote in a note today. The pension overhaul means “a permanent reduction of longer-term liabilities is in sight.”
Italian unions slammed the package. CGIL, Italy’s largest labor group, called a four-hour strike on Dec. 12 to protest the measures, which CGIL President Susanna Camusso said were a “massive blow” to workers. Camusso and leaders of the other two main unions, UIL and CISL, will meet on Dec. 7 to discuss the budget plan, Ansa newswire reported.
Berlusconi’s People of Liberty Party opposes the restoration of a property tax on primary residences, a levy Berlusconi abolished soon after coming to power in 2008. Still, Monti refrained from imposing a “wealth tax” that had been opposed by the PDL and dropped plans to raise the income tax rate on top earners.
The plan also includes corporate tax breaks aimed at spurring hiring of young people and women and encourages private financing of infrastructure projects, measures the PDL welcomed.
“On issues like infrastructure and companies, this package shows continuity with the approach of the Berlusconi government and thus we see the possibility of a fruitful cooperation,” said Fabrizio Cicchitto, chief of the PDL’s delegation in the Chamber, who also criticized the new property tax.
Berlusconi resigned last month after his parliamentary majority unraveled amid infighting within his coalition about new austerity measures demanded by the EU as the country’s bond yields surged past the 7 percent level that led Greece, Portugal and Ireland to seek bailouts. President Giorgio Napolitano opted to reach outside the political system and asked Monti to carry out the kind of economic overhaul that previous governments have been unable to deliver.
“The compact, cross-party block supporting Monti’s government highlights how the threat of sovereign default can be a very persuasive force” for politicians, Silvio Peruzzo, an economist at Royal Bank of Scotland in London. “However, we believe that support is conditional on results and the first impact on the market on that front has been very positive.”
Monti made a point yesterday of reassuring the parties that his government will be short-lived and Italy will hold elections no later than April 2013, when the legislative term ends.
“Some members of Parliament, and I mean big names, understand these reforms are needed,” said Nicola Borri, an economics professor at Rome’s LUISS University. “They think that Monti’s going to do the dirty work and then they’ll take advantage of it or they’ll blame him afterwards.”
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