–Adds Monti Quotes On Need For Economic Growth, Weak State Of Economy

ROME (MNI) – Italy’s new prime minister, Mario Monti, said his
government will implement fiscal reform measures and economic growth
incentives as part of a plan to combat what he called the “serious
emergency” confronting Europe’s third-largest economy.

The government will focus on pension reform, fighting tax evasion
and lowering labor costs to counter what Monti described as Italy’s
“worst situation since World War II.”

Expressing an acute awareness of the gravity of Italy’s predicament
for all of the Eurozone, Monti declared that, “the future of the euro
also depends on what Italy does in the next few weeks.”

He added that the very existence of the European Union depends in
turn on the fate of the single currency. “Let’s not delude ourselves [by
thinking] that the European Union could survive if the single currency
project disintegrates,” he said.

“The end of the euro would destroy the single market, its rules and
institutions, and take us back to the 1950s,” he warned.

Monti said the new government will push through a series of
measures introduced by his predecessor, Silvio Berlusconi, during the
summer. The prime minister also said he is mulling additional reforms
including measures to combat tax fraud and to cut pension spending, in a
bid to lower Italy’s E1.9 trillion public debt, which amounts to 120% of
the country’s GDP.

Financial markets have trained their sights on Italy in the past
couple of weeks, worried that Rome did not have the political will to
cut the debt and pass pro-growth measures. After Italy’s financing costs
soared to dangerous levels, ex-premier Silvio Berlusconi agreed under
pressure to resign earlier this month and cede his post to a
“technical,” politically unaligned government headed by Monti.

After a brief respite in markets following the news of Monti’s
appointment, Italy’s 10-year bond yields have once again spiked above
the red flag level of 7%, from which Greece, Portugal and Ireland never
recovered. Were Italy to lose affordable access to market funding, it
could be lethal for the Eurozone as a whole, since at present — mostly
because of political disagreements — the resources for a bailout of
that magnitude do not exist.

The growing threat faced by Monti’s government — and by extension,
the Eurozone — is that Italy’s stagnant economy could slip into
recession next year, making it increasingly difficult to contain the
country’s huge public debt.

Monti must also convince the European Central Bank to continue
shoring up Italy’s sovereign bonds in order to help keep a lid on
borrowing costs. The ECB started purchasing the nation’s debt on August
8, after Berlusconi’s government promised 45.5 billion euros in new
austerity measures — many of which now fall to Monti to enact.

Monti said Italy’s government would set “ambitious” debt reduction
objectives, but he warned they would not succeed without economic
growth.

“Italy’s economic weakness predates the current financial crisis,”
Monti said. “If my government fails, Italy will face a much harder
situation.” he added. The current government aims to create a blueprint
for economic reform that all future governments can use, Monti said.

Another significant debt-reduction measure being prepared by the
new government is a sale of state assets worth a total of E15 billion
over the next three years, the prime minister said. The government will
publish a list of the divestitures by April 30 2012, he added.

Monti also said the government plans to overhaul real estate taxes
in Italy, which are lower than those in most European countries. He
announced plans to re-introduce a tax on primary residences, a measure
that was scrapped by Berlusconi.

Revenue from increasing real estate taxes, along with income
generated from the fight against fiscal evasion will be used to
introduce growth-boosting measures in the Italian labour market, Monti
said. These will include tax incentives for companies to hire new
employees, especially youths and women.

Monti also plans to tackle the Italian pension system in a bid to
tame the euro region’s second- biggest debt. The current retirement
system contains “unjustified privileges” for some Italian pensioners, he
complained. The system allows many Italians to claim a pension before
the standard retirement age of 65.

An important contribution will also be made by streamlining
government agencies and spending. Monti called on his political
colleagues to show “sobriety” with regard to expenditures, saying he
would be the first to carry out an overview of department spending
practices from the prime minister’s office.

Monti was speaking at the Senate today ahead of a vote of
confidence this evening. His program will also need the approval of the
lower house of parliament, which will vote on Friday.

The prime minister is expected to win comfortably thanks to the
wide majority he enjoys in both chambers after reaching an agreement
with the main political forces ahead of his nomination.

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