Italian austerity

The Italian economy would have collapsed without the government's new austerity package, Prime Minister Mario Monti said on Monday.

"Without this pacakge ... we think that Italy would go into a situation similar to that in Greece," Monti told a news conference.

The comments came after Italy's new government unveiled a program of tax hikes and pension reforms on Sunday aimed at generating an estimated 30 billion euros ($40 billion) to help ease the country's debt crisis and boost growth.

Monti brought a cabinet meeting forward by 24 hours in an attempt to pre-empt the opening of financial markets on Monday.

"We have had to share the sacrifices, but we have made great efforts to share them fairly," Monti said immediately after the three-hour meeting.

Union anger

But two of Italy's three biggest trade unions responded to the draconian austerity measures by calling for a two-hour strike on December 12.

"The plan punishes labor," said Maurizio Landini, head of Fiom, one of the unions.

For his part, Monti, who is also finance minister, told journalists that he would forego his own salary for both ministerial posts. However, Monti added that this was a personal decision and not meant as an example for fellow ministers.

The package announced included some 20 billion euros of budget measures between 2012 and 2014, as well as a further 10 billion euros in measures to boost growth.

Monti described the measures as "painful but necessary," and "a decree to save Italy."

"A lot depends on how well or not we explain to the citizens what we are trying to do," said Monti.

In an emotional moment during the conference, Welfare Minister Elsa Fornero broke down in tears as she explained an effective income cut for many retired people.

Taxes on individual wealth

New taxes were also announced on private wealth - including homes, boats and luxury cars - a measure disputed by some conservatives.

Deputy Economy Minister Vittorio Grilli said the package should ensure that Italy is able to balance its budget by 2013, despite an estimated 0.4 to 0.5 percent contraction in the economy next year.

Policies intended to spur growth and competition, as well as stamp out a widely-perceived nepotism and corruption, were also outlined as part of the package.

The announcement was made as European leaders prepared to meet once again in Brussels that begins on Thursday, aiming to reach agreement on a way out of Europe's debt crisis.

With stagnant growth, Italy has recently seen yields on its 10-year bonds rise to some 7 percent, levels that have forced other countries to request international bailout packages.

Author: Richard Connor, Joanna Impey (AFP, AP, Reuters)
Editor: Nigel Tandy