(For more on Europe’s debt crisis, see EXT4.)
Nov. 17 (Bloomberg) -- Italian Prime Minister Mario Monti won a confidence vote in the Senate today after laying out a program to attack the euro-region’s second-biggest debt and spur growth in its third-largest economy.
The 321-seat Senate voted confidence in the Monti government by a margin of 281 to 25 after he presented the priorities of his new administration in a 40-minute speech to the upper house earlier today. He faces a final confidence vote in the Chamber of Deputies in Rome tomorrow.
Only by boosting growth will investors gain confidence in Italy’s ability to sustain efforts to reduce its 1.9 trillion- euro debt ($2.6 trillion), which amounts to 120 percent of gross domestic product, the same level as two decades ago, Monti said.
“Reforms that have even a gradual effect on growth, have an influence on the expectations of investors, and can be reflected in an immediate reduction in interest rates, resulting in a positive effect on growth itself,” he told the Senate.
The new government will first focus on implementing austerity measures passed by former Prime Minister Silvio Berlusconi’s administration that aimed to balance the budget in 2013, he said. The administration will then take additional steps that may include reinstating property taxes, overhauling the tax system, changing pension rules, trimming the size of the government and modifying labor laws, Monti said.
In comments to lawmakers just before tonight’s vote, he said he was having “intense” contacts with European leaders in recent days and by showing that it can improve its finances, Italy will help ease the region’s debt crisis.
The yield on Italy’s 10-year bond declined during Monti’s speech, falling below the 7 percent threshold that led Greece, Portugal and Ireland to seek European Union aid. The yield ended down 17 basis points to 6.839 percent. That helped reduce the difference over German bunds, Europe’s benchmark, to 495 basis points from 519 yesterday.
Fitch Ratings said in a statement today that Italy’s credit rating could be cut to a low investment grade if the nation loses market access. Still, the company said it believes the new government “will prove itself to be credible in pursuing fiscal and structural economic reform.”
Italy’s main political parties had agreed to back Monti’s technocratic government in the confidence votes, though the breadth of his new program will test that support going forward.
Monti pledged to lead a “government of national commitment” that would promote “rigor,” revamp growth and work for fairness in applying reforms.
The new government will also consider an overhaul of the current tax system to make it “more favorable to growth”, he said. Payroll taxes discourage employers from hiring, while Italy’s lack of a tax on primary residences is “a peculiarity, if not an anomaly” in Europe, he said.
“The reference to the taxation of properties is the most difficult to accept and the most worrisome part of the speech,” said Gaetano Quagliarello, a senior lawmaker in Berlusconi’s People of Liberty Party.
Monti said that if Italy doesn’t find the necessary “unity of purpose,” the “spontaneous evolution of the financial crisis will subject us all, above all the weakest part of the population, to far harsher conditions.”
He also said another priority is combating tax evasion and black market labor, adding that he will consider lowering tax rates for women to encourage them to join the workforce.
Italy should commit to “ambitious” targets to reduce its debt, “but we won’t be credible if we don’t start to grow,” Monti said.
“Monti’s Senate address is the best speech I have ever heard from an Italian prime minister-designate,” Riccardo Barbieri, London-based chief European economist at Mizuho International Plc, said in an e-mail. “Italian market participants must be trying to contain their excitement and reminding themselves that this is only happening because we are on the edge of the abyss.”
Monti, a senator-for-life with no other members of parliament in his Cabinet, was sworn in yesterday after spending two days lobbying parties for their support.
“Monti will try to present the plans of his government with the ‘coupling technique,’ simultaneously announcing measures that will make both of the main parties unhappy,” said Roberto d’Alimonte, professor of politics at Luiss University in Rome. They may be “the reintroduction of the main property tax which Berlusconi’s party doesn’t want and some new legislation on the pension system and the labor market which the Democratic Party or some of its lawmakers oppose.”
Berlusconi’s party said it will vote for the Monti government, though that support was limited to backing the implementation of austerity measures announced by Berlusconi before he resigned on Nov. 12. Monti is also considering introducing a wealth tax, another measure opposed by Berlusconi, newspapers including Corriere della Sera have reported.
The Chamber of Deputies will hold the final confidence ballot tomorrow beginning at 2 p.m. In the lower house, where he faces the final confidence vote, he is expected to have at least 560 votes out of 630.
Monti’s success will hinge on maintaining that backing once he begins delivering austerity measures. In both chambers, he will face opposition from Berlusconi’s key ally, the Northern League. The party, whose 25 senators voted against Monti in today’s confidence ballot, didn’t show up for its scheduled consultations with Monti on Nov. 14.
Monti signaled his commitment to playing a central role in driving economic policy by keeping the portfolio of finance minister for himself. He also named Corrado Passera, chief executive officer of Intesa Sanpaolo SpA, as his economic development minister.
The new premier’s team “is a well-intentioned government with ambitious hopes vested in it,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e- mail. “It remains to be seen whether its apolitical character becomes an asset or a liability.”
--With assistance from Chiara Vasarri in Milan. Editors: Andrew Davis, Jeffrey Donovan, Kevin Costelloe
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