Bloomberg News

Italy’s Labor Reform Won’t Spur Firings, Napolitano Says

March 23, 2012

Prime Minister Mario Monti's Cabinet approved a bill to overhaul Italy’s labor laws that will ease firing rules, facing down opposition from unions and political allies needed to pass the measure in Parliament.

The Cabinet in Rome passed the changes as a draft law, as Monti decided against resorting to a decree that would have implemented the measures immediately and limited parliamentary debate on changing the draft. The government didn’t say when the measures would be presented to Parliament.

The law “intends to create a dynamic, flexible and inclusive labor market capable of contributing to growth and creating quality employment,” Monti’s office said in an e- mailed statement.

Under the plan, companies will be able to fire workers during difficult economic times without the risk of a court ordering their reinstatement. That change provoked a backlash by unions and divided the parties backing Monti. The plan will also extend the country’s limited system of unemployment benefits to provide protection for more workers and limit the use of part- time contracts to encourage more permanent employment.

Pier Luigi Bersani, head of the Democratic Party, which provides vital backing in Parliament to Monti’s four-month-old government and is close to the unions, has said he will seek to get the law amended during the legislative debate. The CGIL, which is Italy’s biggest union, has called a general strike to protest the plan.

German Model

”It’s inconceivable that there will only be economic compensation for firing for economic reasons,” Bersani said today. “This is a fundamental point, otherwise the narrative isn’t ours, it’s not European, but American. Everyone says that things work better in Germany, how can the markets object if we adopt the German model then?”

Judges in Germany have the power to reinstate workers for economic reasons.

The yield on Italy’s benchmark 10-year bond fell 4 basis points to 5.06 percent, snapping three days of gains. That narrowed the yield difference with comparable German bonds to 317 basis points.

Berlusconi’s People of Liberty party and the Third Way alliance back the changes to the firing rules, though don’t have enough lawmakers to pass the measures in Parliament without Monti picking up some additional support.

Legislative Efforts

The labor-market overhaul is the fourth major legislative push that Monti has undertaken to revamp the Italian economy sinct taking over as premier from Silvio Berlusconi in November. He passed a 20 billion-euro ($26.5 billion) austerity plan to balance the budget and revamp pensions, followed by measures to boost competition and cut red tape.

He’s said that the changes are needed to fuel economic growth enough to bring down a 1.9 trillion-euro debt, more than Spain, Greece, Portugal and Ireland combined. Economic growth has lagged behind the euro-region average for more than a decade and the European Commission forecasts a contraction of 1.3 percent this year.

The Cabinet also passed a decree law on bank commissions, to reverse a measure adopted yesterday in Parliament that would deny banks charging fees on loans and other credits, news agency Ansa reported.

To contact the reporter on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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