New Italian PM passes confidence vote

Italy’s new technocratic government has won a crucial confidence vote in the Senate to pursue widespread reforms and austerity aimed at staving off the sovereign debt crisis and saving the euro currency.

This evening, the Senate voted 281-25 to back the one-day-old government of Mario Monti. The lower house votes tomorrow.

Earlier, the new Prime Minister appealed to Italians to accept sacrifices to save their country from bankruptcy, but pledged economic growth and greater social cohesion in return.

His debut address was held against the backdrop of sometimes violent anti-austerity protests.

Italy’s spiralling financial crisis helped bring down media mogul Silvio Berlusconi’s three-and-a-half-year-old government last week, after months of squabbling over how to save Italy from financial ruin.

``Europe is experiencing the most difficult days since the end of the Second World War,'' Mr Monti told Parliament in his debut address. ``Let's not fool ourselves, honoured senators, that the European project can survive if the monetary union fails.''

He pledged to reform the pension system, re-impose a tax on first homes annulled by Mr Berlusconi’s government, fight tax evasion, cut the costs of politics, streamline civil court proceedings and get more women and youth into the workforce.

“This government recognises that it was born to confront a serious emergency in a constructive and united spirit,” Mr Monti said, calling it “a government of national commitment”.

The 68-year-old economist and university president described three pillars of his strategy – budgetary rigour, economic growth and social fairness.

He was interrupted 17 times by applause.

But outside, Rome’s historic centre was paralysed by student protests, and in the financial capital of Milan, riot police struggled to stop protesters trying to reach the Bocconi University over which he presides, signalling the depth of the resistance the new leader will have to confront.

Europe has already bailed out three small countries – Greece, Ireland and Portugal – but the Italian economy, the third-largest in the 17-nation eurozone, is too big for Europe to rescue.

Borrowing costs on 10-year Italian bonds spiked briefly over 7% today – a level that forced those other countries into bailouts – before closing at 6.81%.

In a conference call today, German Chancellor Angela Merkel, French President Nicolas Sarkozy and Mr Monti agreed that their countries have a special responsibility to the eurozone as its three largest economies and founding members of the European Union.

Nevertheless, it is not clear how many sacrifices already-stressed Italians are willing or able to make.

Students demonstrated across Italy under the banner “Save the schools, not the banks”.

In Milan, a large protest was broken up before it could reach Bocconi, which has educated generations of elite business leaders. Protesters also tried to enter the Italian Bankers’ Association office. “The government of the banks,” read one placard held by a youth.

Demonstrators in Palermo, the capital of Sicily, hurled eggs and smoke bombs at a bank, and protesters threw rocks at police, who battled back with pepper spray, the Italian news agency Ansa reported.

One protester was injured in Palermo, where police charged demonstrators who were trying to occupy another bank.

And riot police in Turin reported several officers injured as they held back protesters trying to break through barriers.

In Rome, hundreds of students gathered outside Sapienza University, while others marched from the railway station toward the Senate.

Protester Titti Mazzacane was sceptical about the new government.

Mr Monti chose “decent and competent people”, said the 53-year-old school teacher. “(But his government) is a little bit too free-market liberal. I am a bit scared.”

Fitch, one of the ratings agencies whose downgrade of Italian debt this summer exacerbated the political crisis, expressed confidence that the Monti government “will prove itself credible in pursuing fiscal and structural economic reform”.

But it also warned that Italy is probably already in recession, which will make the task harder.

Mr Monti’s ambitious plans overhaul just about every aspect of the Italian economy, from the organisation of local administrations to the selection process for teachers. More austerity measures will be needed shortly to meet Italy’s goal of balancing the budget by 2013.

Mr Monti said that even passing financial reforms with long-term impact could lead to “an immediate reduction” in borrowing costs by giving important signals to investors. About half of Italy’s €1.9tn debt is held abroad.

Raj Badani, an analyst at IHS Global Insight, said markets will want to see that Mr Monti is able to get consensus for difficult issues like pension and labour market reforms, including making it easier to fire unproductive workers.

“If there is a lot of opposition from trade unions and Parliament, then there is worry that some of these more important reform measures could be watered down or abandoned,” he said.

Mr Berlusconi voiced opposition to any taxes on wealth or property, saying they would have a “negative psychological” impact on development. He had previously abolished a tax on homes.

Elsewhere, transport and teacher strikes which were scheduled before the change of government crippled parts of Italy today.

Despite the protests, Bocconi economist Tito Boeri said he believes that Italians are beginning to understand the seriousness of their country’s economic woes.

“Certainly this government won’t have an easy life,” Mr Boeri said. “It needs to make unpopular choices... however, I think there is a growing awareness of the gravity of the problems. Italians have demonstrated that they can give the best of themselves in difficult moments.”