Don't row back on reforms, OECD tells Italy's parties

ROME Mon Sep 24, 2012 12:27pm EDT

Italy's Prime Minister Mario Monti arrives for a meeting with Greece's Prime Minister Antonis Samaras (unseen) at Chigi Palace in Rome September 21, 2012. Monti met Samaras on the first of a day of meetings with leaders of various European countries. REUTERS/Remo Casilli

Italy's Prime Minister Mario Monti arrives for a meeting with Greece's Prime Minister Antonis Samaras (unseen) at Chigi Palace in Rome September 21, 2012. Monti met Samaras on the first of a day of meetings with leaders of various European countries.

Credit: Reuters/Remo Casilli

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ROME (Reuters) - Mario Monti's technocrat government has laid the base for a reform effort that must be pursued for many years if Italy is to emerge from stagnation, the chief economist of the Organisation for Economic Cooperation and Development said on Monday.

Pier Carlo Padoan told Reuters in an interview that whatever government emerges from Italian elections in the spring should not reverse Monti's measures to consolidate public finances and improve the country's chronically weak economic performance.

"As a private citizen, I am worried about the political uncertainty," said Padoan, who is Italian. "As OECD chief economist, the message is to carry on with the reforms."

Nobody yet knows who will be the leaders of Italy's main parties at the election, which parties will form alliances at the polls, or even which electoral system will be used.

Moreover, the two largest parties have said they would change parts of Monti's reforms of the labor market and the pension system.

Reforms of labor and product markets must be fully and consistently implemented if they are to produce results and much more needs to be done to raise productivity, Padoan said.

Italian labor productivity has been the lowest in the 34-nation OECD bloc for a decade and Italy is the only nation among those hit by the euro zone debt crisis whose unit labor costs have continued to rise over the last four years.

Speaking on the sidelines of an OECD conference in Rome, Padoan called for a more decentralized wage-bargaining system to better align salaries with productivity, and a major reform of the public administration.

"We have a huge problem of fighting corruption. You have to increase transparency, you have to increase efficiency. If the public administration is inefficient it is also more susceptible to corruption," he said.

"We have to reverse a trend that has been here for decades. You can't do that overnight and that is why you need to keep on doing it with the next government."

IMPLEMENTATION

A government bill to counter corruption has been languishing for months in parliament because Silvio Berlusconi's centre-right People of Freedom party refuses to support it.

Padoan warned that if reforms dried up after the election, Italy may not only be "left halfway", but it would also risk going backwards because public support would evaporate.

The need for effective application of the reforms was stressed by several speakers at the OECD conference.

"Implementation has always been one of the problems of our country," said Daniele Franco, a senior Bank of Italy official. "There will only be results if the reforms are effectively carried out, not just written into the statute book."

The OECD said that, if fully and consistently applied, reforms presented by Monti to partially deregulate professions, product markets and the labor market could raise output by 4 percent over a decade. Italy has been the eurozone's most sluggish economy over the course of the last 10 years.

"Implementation, implementation, implementation," OECD General Secretary Angel Gurria repeated three times to underline his message, adding that it would be a "disaster" if the parties followed through on promises to undo parts of the changes.

The vast majority of the measures approved by parliament under Monti still lack the administrative authorizations needed to make them operative.

(Editing by Stephen Nisbet)

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