Italy's Monti faces vital test on labor reform

ROME Tue Mar 20, 2012 1:16pm EDT

Italian Prime Minister Mario Monti gestures during a news conference with German Chancellor Angela Merkel at Chigi palace in Rome March 13, 2012. REUTERS/Tony Gentile

Italian Prime Minister Mario Monti gestures during a news conference with German Chancellor Angela Merkel at Chigi palace in Rome March 13, 2012.

Credit: Reuters/Tony Gentile

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ROME (Reuters) - Prime Minister Mario Monti began a final push on Tuesday to forge a deal with trade unions on labor reform that is a crucial test of his ability to revive Italy's chronically uncompetitive economy.

The former European Commissioner met labor leaders to try to agree on proposals that include easing powerful legal protections for workers dating back to the 1970s high-water mark of trade union power.

The rules, which protect workers in larger companies from being sacked, have been fiercely defended by unions but are also blamed for Italy's painfully low employment rate and years of stagnant growth.

A deal on labor reforms would bolster confidence in Monti's ability to push through the kind of far-reaching changes that are needed to restore growth and reduce Italy's crippling burden of public debt.

"I hope this meeting is conclusive, or almost," Monti told the meeting, according to a tweet from the leftwing CGIL, Italy's largest union.

The government is aiming for a deal by the end of the week, but Monti and Labor Minister Elsa Fornero have pledged to defy the unions and push the reforms through parliament if they cannot reach agreement.

They face strong opposition from the CGIL, which said on Tuesday the government was only interested in "easy firing".

Appointed in November as financial market turmoil threatened to suck Italy into a Greek-style debt crisis, Monti has already moved to shore up public finances through a mix of spending cuts, tax hikes and a major overhaul of the pension system.

Late on Monday, Italy's influential President Giorgio Napolitano called on unions and employers to reach a deal in the interests of the country.

Failure to persuade union leaders, who fear they may have already given too much away in an atmosphere of national emergency, could unleash strikes and dissent within the grand coalition of parties supporting Monti in parliament.

The labor rules have been blamed for creating a two-tier system familiar across southern Europe, where older staff monopolize protected positions and the young are either left unemployed or stranded in precarious short-term contracts.

TWO-TIER LABOUR MARKET

The standoff between the government and unions has focused on Article 18 of the labor law, a provision which makes it difficult to fire workers in companies with more than 15 employees except for gross misconduct.

Monti has conceded that the rules will not change for workers already in employment, but wants to create a different system for new hires.

The three main confederations, which represent a substantial part of Italy's 12-million-strong union membership, are divided. The CGIL is taking a harder line than the more moderate CSIL and UIL.

"An agreement is very possible," UIL leader Luigi Angeletti said on Monday, although he stuck to his demand that the government drop proposed changes which would let employers sack workers for under-performance.

In a sign of the kind of resistance Monti is facing, the metal-workers arm of the CGIL called its members to down tools for two hours of their own choosing during Tuesday in protest against the proposed changes.

The discussions are being watched closely by financial markets, which have been reassured by Monti's first months in government, but which remain nervous about growth prospects in the troubled euro zone.

More than 30 percent of 18 to 24-year olds in Italy are unemployed, and only about 57 percent of Italians have a job, giving the country one of the lowest employment rates in the euro zone.

It also has some of the slowest growth on the continent. Monti must revive the economy if he is to convince markets that Italy can pay off its huge debt, amounting to around 120 percent of gross domestic product.

Italy's benchmark bond yield has fallen to below 5 percent from perilous highs of close to 8 percent near the end of last year. But investors may start changing their view if Monti fails to pull off the labor reforms he has promised.

(Additional reporting by Catherine Hornby; writing by James Mackenzie; Editing by Barry Moody)

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