Monti appealed to lawmakers for support yesterday when he presented the plan to Parliament in Rome. Investors gave their backing, with Italian bonds gaining the most in almost four months and the yield difference with German bunds falling below 400 basis points for the first time since Oct. 31.

“The situation is extremely serious and the government must respond with urgency and determination” Monti told the Chamber of Deputies yesterday. “The measures, at times painful, that we have put forward contain the seeds that will design the Italy of our children, a serious Italy, a European Italy.”

Monti, in office less than three weeks, offered a sweeping budget plan aimed at raising revenue and boosting the country’s anemic growth to persuade investors Italy can tame the region’s second-biggest debt and avoid following Greece, Ireland and Portugal in seeking a bailout. The premier warned that failure to pass the plan could lead to Italy’s “collapse” and threaten the survival of the single currency.

Monti, a university professor and former European Union commissioner, leads a so-called technical government and has no political base in Parliament. The main parties offered muted criticism of parts of his plan, with only the Northern League, former Prime Minister Silvio Berlusconi’s coalition ally, and the small Italian Values Party threatening to oppose it.

‘International Opprobrium’

“Italian politicians are aware that they would earn international opprobrium if they did not give the Monti plan some chance to succeed,” said Stephen Lewis, London-based chief economist at Monument Securities.

Monti’s Cabinet passed the package by decree on Dec. 4, meaning the plan takes effect immediately and Parliament has 60 days to approve the package for it to remain in effect. Both houses of Parliament will vote before the Christmas recess.

This “government is sustained by a strange parliamentary majority of political adversaries who will return to being adversaries in the next election,” said Dario Franceschini, parliamentary leader of the Democratic Party. “The reaction of the spread shows with the arrival of these measures you can once again believe in the capacity of Italy.”

Yields Drop

The yield on Italy’s 10-year bond fell 73 basis points to 5.952, the lowest close since Oct. 27, and the spread with Germany narrowed 79 basis points to 375 basis points.

The Democratic Party, the biggest party in parliament, would prefer to have a more “gradual” overhaul of the pension system and more measures to tax wealth, Franceschini said.

Monti’s plan includes elements that both appease and anger the main parties. The Democratic Party is concerned about a pension reform that will raise the retirement age for many workers, end cost-of-living adjustments on most pensions and make payouts based on contributions rather than salary levels at the time of retirement.

Italian unions slammed the plan. CGIL, Italy’s largest labor group, called a four-hour strike on Dec. 12 to protest the measures, which CGIL President Susanna Camusso said were a “massive blow” to workers. Camusso and leaders of the other two main unions, UIL and CISL, will meet on Dec. 7 to discuss the budget plan, Ansa newswire reported.

Property Tax

Berlusconi’s People of Liberty Party opposes the restoration of a property tax on primary residences, a levy Berlusconi abolished soon after coming to power in 2008. Still, Monti refrained from imposing a “wealth tax” that had been opposed by the PDL and dropped plans to raise the income tax rate on top earners.

The plan also includes corporate tax breaks aimed at spurring hiring of young people and women and encourages private financing of infrastructure projects, measures the PDL welcomed.

“On issues like infrastructure and companies, this package shows continuity with the approach of the Berlusconi government and thus we see the possibility of a fruitful cooperation,” said Fabrizio Cicchitto, chief of the PDL’s delegation in the Chamber, who also criticized the new property tax.

Berlusconi resigned last month after his parliamentary majority unraveled amid infighting within his coalition about new austerity measures demanded by the EU as the country’s bond yields surged past the 7 percent level that led Greece, Portugal and Ireland to seek bailouts. President Giorgio Napolitano opted to reach outside the political system and asked Monti to carry out the kind of economic overhaul that previous governments have been unable to deliver.

Monti made a point yesterday of reassuring the parties that his government will be short-lived and Italy will hold elections no later than April 2013, when the legislative term ends.

“Some members of Parliament, and I mean big names, understand these reforms are needed,” said Nicola Borri, an economics professor at Rome’s LUISS University. “They think that Monti’s going to do the dirty work and then they’ll take advantage of it or they’ll blame him afterwards.”

To contact the reporter on this story: Andrew Davis in Rome at abdavis@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

http://www.bloomberg.com/news/2011-12-05/italy-s-main-parties-hold-fire-on-monti-s-plan.html

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