ROME (Reuters) - Italy risked a Greek-style economic collapse which could threaten the future of the euro without the austerity package approved by the government, Prime Minister Mario Monti said on Monday, calling on European partners to do their part.
Monti’s announcement of the plan on Sunday kicked off one of the most crucial weeks since the launch of the euro more than a decade ago, ending with a summit of European leaders in Brussels on Thursday and Friday to seek a wider set of crisis measures.
“If Italy were not capable of reversing the negative spiral of growth in debt and restoring confidence to international markets, there would be dramatic consequences, which could go as far as putting the survival of the common currency at risk,” Monti told parliament.
“Italy is ready to do what it has to do but Europe must not fail to do its part,” he said.
The package, dubbed a “Save Italy” decree by Monti, aims to raise more than 10 billion euros ($13.4 billion) from a property tax, impose a new levy on luxury items like yachts, raise value added tax, crack down on tax evasion and increase the pension age.
“Without this package, we think that Italy would have collapsed, that Italy would go into a situation similar to that of Greece,” Monti told foreign journalists before heading to parliament to present the package to lawmakers.
He acknowledged the package would weigh on Italy’s fragile economy which most analysts say is already in recession, but said without action the consequences would have been much worse.
The package, packed into an emergency decree that takes effect before formal parliamentary approval, is expected to gain the backing of most parties, with the exception of the regional pro-devolution Northern League party.
Italy, the euro zone’s third-largest economy, has been at the centre of the crisis since mid-year, when its borrowing costs began to approach the levels that forced Ireland, Greece and Portugal to seek an international bailout.
Markets welcomed the measures, which analysts said should be enough to persuade the European Central Bank to continue to hold down borrowing costs by buying Italian bonds on the market.
Yields on 10-year Italian bonds dropped to just over 6 percent, around a full percentage point lower than last week, while the risk premium over benchmark German Bunds fell below 400 basis points, levels last seen in October.
International reaction was also positive, with Dutch Prime Minister Mark Rutte, who met Monti in Rome on Monday morning, the European Commission and the head of the Organisation for Economic Cooperation and Development all welcoming the package.
Monti, whose sober style contrasts markedly with his flamboyant predecessor Silvio Berlusconi, said Italy wanted to play a full part in Europe and said no country could act alone.
“There’s no country so strong that could have an advantage in isolating itself or separating itself from weaker countries,” he told foreign reporters.
He said his government’s austerity measures would contribute to a solution involving the euro zone’s bailout fund, the International Monetary Fund and the ECB and he backed French and German calls for tighter controls on national budgets.
“I feel that it would be perfectly understandable that the European Commission should have the same enforcement powers in the area of budgets that it has in the area of competition,” he told reporters.
Monti, appointed at the head of a technocrat government last month, had been under growing pressure to come up with concrete measures to address fears about Italy’s towering debt mountain.
He has held to Berlusconi’s pledge of a balanced budget by 2013, despite growing signs that Italy is heading into a recession that will make it extremely difficult to make inroads into a public debt of 120 percent of gross domestic product.
Deputy Economy Minister Vittorio Grilli said the measures outlined on Sunday would allow the deficit goal to be met despite a forecast that GDP would contract by 0.4-0.5 percent in 2012.
The package is divided into 20 billion euros of budget tightening and an additional 10 billion euros that will be pumped back into the economy in the form of measures to help companies and boost growth.
Caught between the competing needs of slashing the deficit and safeguarding a fragile economy, Monti’s government risks growing opposition after an initial honeymoon period granted by a public fed up with the scandals of the Berlusconi era.
Unions criticized the package and in an early sign of possible opposition to the Monti government, the moderate CISL and UIL unions announced a two hour strike against the austerity package on Monday, December 12.
Additional reporting by Philip Pullella and Alberto Sisto, Writing by James Mackenzie; Editing by Barry Moody and Maria Golovnina