Monti: It's time to make sacrifices

Against the backdrop of anti-austerity protesters clashing with riot police, Italy's new Premier yesterday appealed to Italians to accept sacrifices to save their country from bankruptcy, but pledged economic growth and greater social cohesion in return.

Mario Monti is under enormous pressure to boost growth and bring down Italy's high debt, not only to save Italy from succumbing to the debt crisis but to prevent a catastrophic disintegration of the common euro currency.

"Europe is experiencing the most difficult days since the end of the Second World War," Monti told Parliament in his debut address. "Let's not fool ourselves, honoured senators, that the European project can survive if the monetary union fails."

Monti pledged to reform the pension system, re-impose a tax on first homes annulled by Silvio Berlusconi's Government, fight tax evasion, streamline civil court proceedings, get more women and youth into the work force, and in a move aimed at setting an example for ordinary Italians - cut political costs.

The Government will decide "in the coming weeks" what new austerity measures are needed, Monti said.

The 68-year-old economist and university president described three pillars of his strategy: budgetary rigour, economic growth and social fairness.

"This Government recognises that it was born to confront a serious emergency in a constructive and united spirit," Monti said, calling it "a Government of national commitment".

He was interrupted 17 times by applause. But outside, Rome's historic centre was paralysed by student protests and in the financial capital of Milan, riot police struggled to stop protesters trying to reach the Bocconi University over which he presides, signalling the depth of the resistance the new leader will have to confront.

Monti's one-day-old Government won a vote of confidence 281-25 in the Senate later in the day, ahead of a vote in the Lower House today, on his Government of experts, including fellow professors, bankers and business executives. He was chosen to lead after Italy's spiralling financial crisis brought down media mogul Berlusconi's 3-year-old Government.

Europe has already bailed out Greece, Ireland and Portugal but the Italian economy, the third-largest in the 17-nation eurozone, is too big for Europe to rescue.

In a conference call yesterday, German Chancellor Angela Merkel, French President Nicolas Sarkozy and Monti agreed that their countries have a special responsibility to the eurozone as its three largest economies and founding members of the European Union. Still, it's not clear how many sacrifices already-stressed Italians are willing or able to make.

Students demonstrated across Italy under the banner: "Save the schools, not the banks".

In Milan, a large protest was broken up before it could reach Bocconi, which has educated generations of elite business leaders. Protesters also tried to enter the Italian banker's association office. "The Government of the banks" read one placard held by a youth.

Demonstrators in Palermo, the capital of Sicily, hurled eggs and smoke bombs at a bank, and protesters threw rocks at police, who battled back with pepper spray. One protester was injured in Palermo, where police charged demonstrators who were trying to occupy another bank.

And riot police in Turin reported several police injuries as they held back protesters trying to break through barriers.

In Rome, hundreds of students gathered outside Sapienza University, while others marched from the train station toward the Senate.

Protester Titti Mazzacane was sceptical about the new Government.

Monti chose "decent and competent people", said the 53-year-old elementary schoolteacher.

"[But his Government] is a little bit too free-market liberal. I am a bit scared."

Monti's ambitious plans overhaul just about every aspect of the Italian economy from the organisation of local administrations to the selection process for teachers.

Monti indicated that he would seek to lower taxes on labour, while raising those on consumption. And he pledged measures such as setting a limit on cash transactions - to tackle tax evasion, which he estimated is worth 20 per cent of GDP.

As for cutting political costs, Monti said he would start with an analysis of spending by the Premier's office.

Monti said even passing financial reforms with long-term impact could lead to "an immediate reduction" in borrowing costs by giving important signals to investors.

About half of Italy's €1.9 trillion ($2.6 trillion) debt is held overseas.

Raj Badani, an analyst at IHS Global Insight, said markets would want to see that Monti is able to get consensus for tricky issues like pension and labour market reforms, including making it easier to fire unproductive workers and reforming the collective bargaining system.

"If there is a lot of opposition from trade unions and Parliament, then there is worry that some of these more important reform measures could be watered down or abandoned," Badani said.

Already, Berlusconi, now a politician, voiced opposition to any taxes on wealth or property, saying they would have a "negative psychological" impact on development.

The abolition of a tax on a primary residence - which Monti called an anomaly in Europe - was a campaign promise made by Berlusconi before his last election.

Fitch, one of the ratings agencies whose downgrade of Italian debt this northern summer exacerbated the political crisis, expressed confidence that the Monti Government "will prove itself credible in pursuing fiscal and structural economic reform".

But it also warned that Italy was probably already in recession, which would make the task harder.

Despite the protests, Bocconi economist Tito Boeri said he believed that Italians were beginning to understand the seriousness of their country's economic woes.

"Certainly this Government won't have an easy life," Boeri said.

"It needs to make unpopular choices ... however, I think there is a growing awareness of the gravity of the problems.

"Italians have demonstrated that they can give the best of themselves in difficult moments."

AP