Letta Wins Final Confidence Vote to Install Italy Government

Italian Prime Minister Enrico Letta won the final confidence vote needed to install his government before taking his economic growth plan to Berlin to meet German Chancellor Angela Merkel.

The ballot gives Italy a working government more than two months after inconclusive elections and helped push bond yields to the lowest in more than 2 1/2 years. Merkel and Letta hold a press conference at 6 p.m.

Letta, 46, garnered 233 of 311 possible votes in the Senate today after a discussion of his program that reaffirms Italy’s commitment to budget discipline and calls for tax cuts for business, consumers and homeowners. The plan, a compromise among the three parties backing the government, lacked details about how Letta would fund the tax reductions.

“It’s clear that this government will have a difficult balancing act to perform,” said Riccardo Barbieri, chief European economist at Mizuho International Plc.

Berlusconi Threat

Tensions were apparent today when Letta’s coalition partner, former Prime Minister Silvio Berlusconi, threatened to withdraw his support if the new government didn’t abolish an unpopular property tax on primary residences. Letta announced yesterday he would suspend the next payment due in June and review the levy.

The suspension of the tax known as IMU reflects the influence of Berlusconi who placed the levy at the center of his anti-austerity election campaign. Letta will have to balance the demands for stimulus from Berlusconi, 76, and Letta’s Democratic Party against the budget discipline required by the European Union.

Letta has also said the government would seek to avoid a scheduled 1 percentage point increase in the value added tax to 22 percent due in July. He proposed reducing payroll levies, and said tax breaks to favor the hiring of young people will also be considered.

The promises may require savings of about 10 billion euros ($13 billion), according to Barbieri.

Bonds Advance

Italian 10-year bond yields fell 2 basis points to 3.89 percent at 1:42 p.m. in Rome, after earlier touching to the lowest rate since October 2010. The difference between yields on similar maturity German bunds narrowed 1 basis point to 2.7 percentage points.

Letta came to power this week after uniting his Democratic Party and Berlusconi’s People of Liberty to end the parliamentary deadlock caused by the Feb. 24-25 the elections.

He inherits an economy struggling through its second year of recession and saddled with the second-largest debt load in the euro area, after Greece. Letta, who emerged as a leader in Parliament only last week, is taking over from Mario Monti, who guided Italy through the European debt crisis by raising taxes and prodding Merkel into endorsing collective action in the European Union.

“In Europe and internationally, Italy will find strategies to boost growth without compromising the necessary process of restructuring of public finances,” Letta said yesterday in the Chamber, Italy’s lower house of parliament.

Monti’s Austerity

In his 17 months in office, Monti bolstered Merkel’s campaign for austerity in Europe by making deficit reduction the focus of his policies. While Letta serves at the head of the same parliamentary coalition that supported Monti, the new premier has faced more pressure to challenge EU rules and repeal austerity as Italy’s recession deepens.

“We believe Europe will die if we only have restructuring and only rigor,” Rosy Bindi, a lawmaker and the outgoing Democratic Party chairwoman, said yesterday in the Chamber.

Popular discontent with the economy was highlighted April 28 when two police officers were shot outside of the prime minister’s office in Rome. The 49-year-old assailant told investigators he wanted to shoot politicians after losing his job during the economic slump.

Social tension has been on the rise as unemployment at 11.5 percent, remains near the highest in more than 20 years, with the economy probably in its eighth quarter of contraction. Letta must win the trust of Italian voters who repudiated Monti’s austerity in the February elections. Italians gave a quarter of their votes to the upstart Five Star Movement, which calls into question euro membership and pushes the government to demand more leeway from the EU.

Letta also set out a plan to reduce the cost of government that included the abolition of provinces and the elimination of double salaries for lawmakers who serve as Cabinet ministers.

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