Italian PM throws down gauntlet for labour reforms

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In his biggest challenge to Italy's unions since he became Prime Minister, Mario Monti threatened to quit if his reform efforts, designed to restore growth to one of Europe's most sluggish economies, are rejected.

Mr. Monti delivered the threat Monday, when he was attending the nuclear security summit in Seoul. When his technical government was appointed in November, he pledged to push through sweeping economic reform programs before elections are held in 2013.

In Seoul, however, he hinted he might step down before then if he doesn't get his way. "If the country, through its labour organizations and political parties, does not feel ready for what we consider a good job, we would certainly not seek to keep going just to reach a particular date," he said.

James Walston, professor of Italian politics at the American University of Rome, described it as "Monti's very polite ways of throwing down the gauntlet, [although]he will get some of what he wants."

Mr. Monti, who replaced Silvio Berlusconi when Italian sovereign-bond yields had soared to unsustainable levels, has used a combination of strengthened austerity programs and reform efforts to take the edge off the Italian debt crisis.

Yields on Italy's benchmark 10-year bonds since have fallen to about 5 per cent, well below their autumn peak of about 7.4 per cent, and the budget deficit is expected to be 1.9 per cent of gross domestic product this year, down from last year's 4 per cent. The 2012 figure is one of the lowest in the euro zone although national debt, at about 120 per cent of GDP, is outdone only by Greece.

His "Salva Italia" (Save Italy) program has now given way to "CrescItalia" (Grow Italy) program. Its centrepiece is the reform of the country's antiquated and sclerotic labour laws, widely considered one of the greatest impediments to growth and job creation, especially among the young. More than 30 per cent of 18- to 24-year-olds are unemployed in Italy and, with the economy back in recession, few will find it easy to find work in the near future.

Italy's labour laws make it hard for small companies to expand. Once they reach 15 employees, getting rid of any of them risks lengthy and expensive legal proceedings, even if an economic downturn makes it financially difficult to keep them on the payroll. The majority of Italian businesses are small, as a result.

The legislation proposed by Mr. Monti's government would see terminated employees receive up to 27 months pay, but no prospect of regaining their employment (although the courts would still decide whether firings are unfair because of discrimination, for example).

Other labour-related legislation would, through the use of broader unemployment benefits, encourage apprenticeships rather than short-term work contracts. Still another would allow young entrepreneurs – under age 35 – to set up a business for one euro. Mr. Monti has also proposed a fast-track court to deal with business disagreements.

Mr. Monti's proposals are being watched closely by the European Commission and the International Monetary Fund, the sponsors of the bailouts of Greece (twice), Ireland and Portugal. They are anxious to see Italy, the euro zone's third largest economy, return to growth to minimize the chances of it having to receive outside financial assistance.

The problem is that Italy's largest trade union, CGIL, has opposed Mr. Monti's labour reforms and has called for a strike in protest. With 5.5 million members, a CGIL strike would paralyze the country.

Meanwhile, the prime minister's latest popularity rating showed a sharp drop, implying that support for his reforms may be waning. Still, he has the support of parliament's three main political parties.

Mr. Walston thinks Mr. Monti will win much, although probably not all, of the labour reform he covets. There are factions within the CGIL that support him, Mr. Walston said. "Monti is definitely doing a lot for the economy."

Elsa Fornero, the welfare minister who is architect of the labour reform, is being treated to heightened security while the legislation is being debated. In January, a postal worker found envelopes containing bullets addressed to her. Efforts at serious labour reform have rarely made progress in recent years and have sometimes been met with violent reprisals.