Mr. Monti’s difficulty in carrying out economic reforms could weaken the underpinnings of the accord reached in Brussels last week in which European leaders agreed to greater political coordination to support the euro, combined with pressure to bring Europe’s debt-ridden southern fringe back to growth.

In addition to austerity measures, heavily indebted countries like Italy and Greece are expected to carry out structural reforms that experts say may eventually make their economies competitive with those in northern Europe, particularly Germany’s. That lack of competitiveness has produced a chronic balance of payments deficit in the southern countries that economists say lies at the heart of the euro zone’s troubles.

It was hoped that Italian lawmakers would rally around Mr. Monti’s government of technocrats and make the tough decisions they have avoided in the past. But if his experience with this week’s measures is any guide, his government is bound to hit strong headwinds from vested interests that grip every corner of Italy’s complex, neofeudal economy.

After days of political wrangling in Parliament, the Monti government bowed to pressure from the right — most notably from the party of the former prime minister, Silvio Berlusconi — and dropped some elements of the $40 billion package of spending cuts and revenue increases, including a wealth tax and the speedy liberalization of closed professions like taxi drivers and pharmacists, a plan that drew protests from their powerful guilds. It also scaled back a newly reinstated property tax on primary residences.

After protests from the left and labor unions, some counting more pensioners than workers among their members, Mr. Monti reinstated inflation increases on low-level pensions that he said would make the measures more equitable.

Mr. Monti has said he wants to make Italy more equitable — especially for young people and women, whom he has called a “wasted resource” — and to help the economy grow. But even as he pledged on Thursday to address labor reform and other structural changes in the coming weeks, he has run up against a wall of vested interests.

“In Italian society, there is no division between left and right; there’s a division between those who are inside or outside some organized groups,” said Sergio Fabbrini, the director of the School of Government at Luiss Guido Carli University in Rome. “All the main political parties from left to right represent the insiders. The left represents the pensioners, the trade unions. The right represent various insiders: the lawyers’ organizations, notaries.”

The only way for young people and women to be represented “is to have a technical government,” he added, “but of course a technical government will have to pass through the approval of the Parliament. And here again the insiders are well organized.”

For Friday, when the lower house is expected to approve the somewhat watered-down package in a confidence vote, labor unions have called a nationwide transport strike and have vowed more demonstrations. This week, Susanna Camusso, the leader of the largest labor union, C.G.I.L., said the country risked a “social explosion” over pension reform.

But for the most part, the new austerity package is based on tax increases. It would reinstate a property tax on first homes, which Mr. Berlusconi had eliminated as an election promise in 2008. It would also impose a 1.5 percent tax on revenues brought into Italy under an earlier tax amnesty, and add taxes on cigarettes and gas, which is close to 1.70 euros per liter, or more than $8 a gallon.

The governor of the Bank of Italy, Ignazio Visco, said last week that the measures would increase Italy’s tax burden to 45 percent, a level that businesses say is unsustainable.

Article source: http://www.nytimes.com/2011/12/16/world/europe/italys-leader-monti-offers-tax-increases-not-deep-reform.html?partner=rss&emc=rss