Italy parliament votes to seal austerity budget

ROME Thu Dec 22, 2011 1:48pm EST

Italian Prime Minister Mario Monti smiles as he attends a confidence vote in Rome December 22, 2011. REUTERS/Alessandro Bianchi

Italian Prime Minister Mario Monti smiles as he attends a confidence vote in Rome December 22, 2011.

Credit: Reuters/Alessandro Bianchi

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ROME (Reuters) - Italy's Senate passed a vote of confidence in the government of Prime Minister Mario Monti on Thursday that put the final seal on an emergency austerity budget rushed through to restore market confidence in the euro zone's third biggest economy.

The upper house voted 257 to 41 for the government, following a similar easy win in the lower house last week.

Monti, said he was happy with the vote and Italy could hold its head high in Europe after passing the package of spending cuts, tax rises and pension reform.

The budget is intended to reverse a collapse of market confidence which has pushed Italy's borrowing costs to untenable levels and put it at the heart of Europe's debt crisis.

Addressing the Senate before the vote, Monti said his technocrat government had to push through the budget as fast as possible.

"Today this chamber concludes a rapid, responsible, complex job... on a decree that was passed in extreme emergency and that enables Italy to hold its head high as it faces the very serious European crisis," Monti declared.

The prime minister, appointed only five weeks ago, said that after addressing Italy's massive debt in the 33 billion euro ($43 billion) budget, the government would turn to the country's second economic millstone, a decade of near zero growth.

Investors turned their spotlight on these two problems in July, sending Italy's borrowing costs rocketing.

Monti replaced Silvio Berlusconi as prime minister last month and formed an administration of technocrats with broad parliamentary support to pass the so-called "Save Italy" decree.

Berlusconi's failure to tackle major reforms and restore market confidence brought Italy to the brink of economic catastrophe, although market pressure has continued since Monti took power.

MONTI CALLS FOR GROWTH

Monti repeated a frequent refrain over recent weeks, that European policy must address growth as well as cutting debt.

Euro zone paymaster Germany has insisted that policy should concentrate on fiscal discipline despite fears by both indebted countries and economists that this will choke off essential growth if taken too far.

The government previously passed the budget in the lower house with a confidence vote last week to eliminate debate on dozens of amendments, many of them brought by the opposition Northern League, which was part of Berlusconi's administration.

League deputies blew referees' whistles and held up a banner reading "Robber Government" in an attempt to disrupt calling of the confidence vote in the Senate on Wednesday.

The votes in both houses allowed the broad swathe of parties supporting Monti to show they are backing him out of a sense of responsibility even if they are uneasy with specific measures.

Berlusconi's People of Liberty Party (PDL) is worried about tax increases and the centre-left Democratic Party about pension cuts, but they know they cannot sabotage the bill without unleashing an economic disaster including a possible default.

In a reference to serious tension in recent days between the government and trade unions over labor market reform, Monti said the issue would need more detailed dialogue with both them and employers before it was decided.

A suggestion by Welfare Minister Elsa Fornero this week that the government could take measures making it easier to fire workers caused a union outcry and she has since acknowledged she was "naive" to suggest it before more detailed discussion.

The severity of Monti's package has taken a toll on his popularity, which fell to 46 percent from 61 percent the previous week, according to a poll published in Corriere della Sera on Sunday.

Berlusconi has promised Monti full support but expressed fear that "the horse's medicine could kill the horse," a reference to widespread fears that the budget could stamp out fragile growth.

Monti says markets will eventually react positively to Italy's efforts, arguing that lower interest rates will help offset the effects of the austerity measures on growth.

While bond yields have come down, with the 10-year issue steadily below 7 percent, the austerity package has failed to bring them back to more sustainable levels of about 5 percent.

Last week, ratings agency Fitch placed Italy and five other euro zone countries on a downgrade warning in the absence of a "comprehensive solution" to the debt crisis.

Italy's economy has expanded by an average of only 0.4 percent per year for the past decade.

It shrank 0.2 percent in the third quarter of this year, compared with 0.5 percent growth in Germany and 0.4 percent in France, and economists don't predict a recovery until the second half of next year.

The main employers' lobby, Confindustria, predicts a 1.6 percent decline in gross domestic product in 2012, four times worse than the government's forecast.

Monti's budget went into effect on December 4, when it was passed by the cabinet, but needed parliamentary approval within 60 days to become permanent.

(Writing by Barry Moody; Editing by Jon Boyle)

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