December 18, 2011 / 3:52 PM / 6 years ago

Italian budget in home stretch, unions on warpath

ROME (Reuters) - Italy’s austerity budget, vital to get Rome’s accounts in order and help save the euro from collapse, enters its final stretch this week, with unions still mounting roadblocks to its path.

The 33 billion euro ($43 billion) package of cost cuts and new taxes was passed by the Chamber of Deputies on Friday after Prime Minister Mario Monti’s one-month-old government won a confidence vote earlier in the day.

It has now moved from the lower house to the Senate, whose leader Renato Schifani promised on Sunday that it would go through before Christmas. Most observers expect it to be definitively approved on December 23.

Industry Minister Corrado Passera said later that the new government had no plans to introduce a second round of austerity, contradicting Giulio Tremonti - finance minister until November - who said more was very likely.

The measures, which have been hailed by Italy’s European Union partners, will cut public spending, raise taxes and reform pensions in a bid to restore market confidence in the country’s finances and balance its budget by 2013.

The collapse of investor confidence during the summer under Silvio Berlusconi’s administration thrust Italy to the centre of the euro zone debt crisis, and pushed its borrowing costs to untenable levels on bond markets.

The austerity plan, challenged by unions and the opposition Northern League, has been in effect since Monti’s government approved it on December 4, but needs full parliamentary approval within 60 days.

Labor Minister Elsa Forneo, who like all members of the Monti government is technocrat and not a politician, served notice to the unions that they would have to be flexible.


She told Sunday’s Corriere della Sera newspaper that a key article of Italy’s labor statute “was not written in stone.”

Known as Article 18, it has become a sacred cow for unions and a cornerstone of their battles because it makes it extremely difficult to dismiss workers in companies with more than 15 employees. It also says that workers judged by a labor court to have been wrongfully dismissed must be re-instated with full past payment.

“I‘m not saying that there is a preconstituted recipe (for labor reform) but also that nothing is written in stone and so I invite unions to take part in honest and open intellectual discussion,” Fornero told the newspaper.

Susanna Camusso, head of Italy’s largest union confederation, told Reuters in an interview last week that the country risked a “social explosion” over austerity.

Camusso said she was firmly opposed to any changes in article 18 and that unions planned more protests.

Raffaele Bonanni, leader of another union, showed his contempt for the package by telling reporters it “could have been written by my uncle, who knows nothing about economics.”

Fights with unions aside, Monti has his work cut out just satisfying the political parties that back him.

Pressure from the centre-right has forced Monti to delay plans to liberalize some sectors, such as pharmacies, taxis, lawyers and notaries, which are still protected by unions and guilds who want to keep their numbers low.

The two biggest groups, Berlusconi’s centre-right People of Freedom Party (PDL) and the centre-left Democratic Party (PD), support the government, although both want it to soften the plan’s impact on their core support.

Both parties know that despite their misgivings they cannot sabotage the government without risking a sovereign default by the euro zone’s third biggest economy.

Monti was boosted by a parliamentary vote of confidence on Friday and said he was “absolutely not in despair” about Italy escaping its debt predicament. However his popularity has been on the wane as the package becomes better known.

A poll in Sunday’s Corriere della Sera newspaper showed his popularity has plunged to 46 percent from 61 percent a week ago.

But Monti, a former European commissioner, has made it clear he is not looking for popularity under a mandate from Italy’s president to solve the debt crisis and reassure markets.

On Friday evening, ratings agency Fitch placed Italy and five other euro zone countries on a downgrade warning in the absence of a “comprehensive solution” to the debt crisis.

Editing by Mark Trevelyan and Ben Harding

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