March 29, 2024

Italian Premier, Monti, Presents Plan for Economic Growth

Devised to spur growth in a country that has seen little of it in the past 15 years, the proposals would include liberalizing Italy’s closed professions and guilds, encouraging competitiveness and modernizing the nation’s outdated infrastructure.

The government will also tackle labor reform, a thorny issue for labor unions as well as for some political parties that support Mr. Monti’s government. To offset the criticism that such measures will undoubtedly spur, the prime minister said those changes would be matched by bolstering support to welfare services for the unemployed and for Italian youths.

“Italy is making a great effort,” Mr. Monti said. “It is looking to build a better future on less ephemeral foundations, to safeguard future generations.”

Mr. Monti pitched the master plan as the follow-up to changes, nicknamed “Save Italy,” that were passed this month by Parliament, and were heavily tilted toward raising revenues through taxes. He had wanted to include some of the proposed new measures in that plan, but backed down after opposition from the political right and powerful guilds.

It is unclear if Mr. Monti will have any better chance of winning approval for such fundamental changes next year, but he has one thing working in his favor: None of the country’s main political parties want to topple his government of technocrats yet because none feel they could do well enough in elections.

For now, Mr. Monti’s package was more a wish list than a specific plan he could present to Parliament, but he said that some of the measures would be drafted in time to present to euro zone finance ministers who will meet in Brussels on Jan. 23.

The broad outlines of change won plaudits on Thursday from two of the main political parties — the two that are the most important to Mr. Monti’s effort to win passage — though their enthusiasm may wane as the specifics become clearer.

Pier Luigi Bersani, the leader of the center-left Democratic Party, said Mr. Monti’s analysis of the Italian situation was a “dose of reality after years of fables.” And lawmakers with the party of former Prime Minister Silvio Berlusconi, who was ousted over the country’s economic troubles, said Mr. Monti had touched the right chords for growth. The lawmakers, however, also said they would need to see the content of the proposals before giving the plan their full support.

In a hopeful sign, Italy sold another bundle of government debt on Thursday at levels well below the last bond auction, suggesting more confidence in Italy’s economic future, at least in the short term. But the continuing high yields on the benchmark 10-year bonds — just shy of the 7 percent rate at which other euro zone governments were forced to seek bailouts — pointed to continuing challenges ahead.

Italy, the euro zone’s third-largest economy, must refinance almost 200 billion euros in government debt (about $260 billion) by April, and if borrowing rates remain high, the country could face a solvency crisis that could threaten the stability of the euro.

At the Thursday sale, the 10-year bond was priced to yield 6.98 percent, down from a euro-era record high for Italy of 7.56 at the previous sale in late November. The Italian Treasury also sold bonds due in 2014 to yield 5.62 percent, down from 7.89 percent.

Despite the encouraging news, Italy was unable to sell all the bonds it wanted to on Thursday, selling 7 billion euros’ worth (about $9 billion), rather than the target of 8.5 billion euros (about $11 billion).

In an auction of 9 billion euros (about $11.6 billion) in short-term Treasury bills on Wednesday, rates fell by half from previous levels. But the sale on Thursday was seen as a more significant signal of market sentiment about the longer-term outlook of Italy’s struggling economy.

Analysts had said that much of the buying on Wednesday came from European banks that had just loaded up on cheap, three-year loans from the European Central Bank, and were looking for easy profit.

Bloomberg News and Reuters reported that the European Central Bank had bought small quantities of Italian bonds on Thursday on the open market after the closely watched auction showed 10-year yields still close to 7 percent.

Mr. Monti said Thursday that he was encouraged by the bond auctions, but he warned that rough times were ahead. “We absolutely don’t consider the market turbulence to be over,” he said. “There is much more to do,” he added, but said a long-term solution required that “work must be done in Europe” within a more integrated framework.

President Giorgio Napolitano was more blunt, chiding European leaders on Thursday for not being up to the challenges of economic globalization. In a letter published in the Rome daily newspaper La Repubblica, Mr. Napolitano said European leaders seemed to be having trouble finding a “new balance between economic and social policies,” and called on them to overcome “dogmas and national limits” and act with more courage to bolster troubled economies.

Some analysts remain skeptical that Mr. Monti’s new proposals can do enough to spur growth while Italy is under so much pressure by Germany and other European countries to cut spending.

If Italy is forced to pursue policies that bind it to reducing its debt and balancing its budget by 2013, then “welcome to a future of stagnation and recession,” said Gustavo Piga, an economist at the University of Rome, Tor Vergata. Italy need look no further than Greece to see the effects of too much cost-cutting, he said, and he noted that debt over gross domestic product was still rising in Greece because gross domestic product was collapsing.

Mr. Piga said that the proposals Mr. Monti presented Thursday were too vague to comment on, but that reforms generally take a long time to generate growth, particularly in a recession. “Do you think that if you liberalize Roman taxi drivers you’ll generate growth tomorrow?” he asked. “It’s important to start reforms, but you also need to stimulate demand, which will raise G.D.P.”

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Tensions Escalate as Stakes Grow in Fiscal Clash

And the latest bipartisan negotiating session on Wednesday evening ended in heightened tension, if not outright discord. Republicans said Mr. Obama had abruptly walked out in an agitated state; Democrats described the president as having summed up with an impassioned case for action before bringing the meeting to a close and leaving.

Across Washington, officials were weighed down with a sense that they were hurtling toward a crisis. Grim-faced lawmakers spent the day shuttling from meeting to meeting in search of a way out of the fix.

The stakes are high, for the economy, the financial markets and both parties. But the pressure was particularly intense on Republican leaders, who only weeks ago seemed to be on the offensive and in a strong position to extract major concessions from Mr. Obama and the Democrats.

For months, the Republican leaders have emphatically pledged that there will be no increase in the federal debt ceiling absent huge cuts in government spending and fundamental changes in popular social programs, all without the whiff of a tax increase.

Now, with negotiations stalled and a potential default by the United States government just over the horizon, they are being held to those promises by their own rank-and-file, leaving them in a bind that is defying easy resolution and putting them at risk of being blamed if things end badly.

Behind closed doors and by phone, they groped for a solution and struggled to assert some kind of control over the situation as rank-and-file Republican members, especially in the House, grew more confrontational.

Panic had not yet set in, but the worry and tension were evident as seasoned lawmakers of both parties whose experience told them that Congress always finds a white-knuckle way to avert disaster wondered if this was going to be the time when it did not.

“Our problem is, we made a big deal about this for three months,” said Senator Lindsey Graham, Republican of South Carolina.

“How many Republicans have been on TV saying, ‘I am not going to raise the debt limit,’ ” said Mr. Graham, including himself in the mix of those who did so. “We have no one to blame but ourselves.”

Potential last-minute options were being gamed out around Capitol Hill. Senate Republicans were pushing their counterparts in the House to deliver some legislation, which could take the form of a balanced budget plan due on the House floor next week. A bipartisan group that had been working on a major deficit-cutting plan in the Senate was trying again to produce a proposal.

And Senator Mitch McConnell of Kentucky, the Republican leader and procedural maestro, was pushing his plan that would allow a debt limit increase to clear Congress without Republican fingerprints — and without the guaranteed cuts many in his party are demanding. He would establish an elaborate process where Congress would vote to disapprove instead of approve a debt limit request. That would allow the president to raise the debt ceiling via a successful veto of the disapproval if it came to that.

Despite resistance from conservatives and the initial unease many lawmakers expressed at such a slippery approach, the McConnell gambit was gaining credence as the best escape hatch. Senate Democrats went virtually silent on the idea for fear of jinxing it. While the White House said it was not the preferable option, it was viewed inside the West Wing as a real option nonetheless, even if it would transfer to Mr. Obama and his party all the political responsibility for a debt limit increase.

Some of Mr. McConnell’s colleagues were coming around to it as the reality of a possible default began to sink in.

Jackie Calmes, Robert Pear and Binyamin Appelbaum contributed reporting.

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