The measures were enough to send the 10-year yield tumbling below 6 per cent.
It is worth pausing to consider two things, however. First, Italy needs
growth, not austerity. Second, parliament may well water it all down. The
measures are a welcome but small step on a very long journey.
A property tax, a clampdown on tax evasion, pension reform and a tax on luxury
goods appear to tick all those Italian boxes that make other Europeans
jealous. The aim is to save €30bn over the next three years and to balance
the budget by 2013. Italy has €1.9tn of outstanding debt, however: the best
way to cut that is a strong economy. In that context, the most striking news
from Rome at the weekend was the poor outlook for growth. The government
forecasts that the Italian economy will shrink in 2012 by 0.5 per cent.
Mr Monti is also promising labour market reforms. These are essential. Italy
is falling down the ranks of business-friendly countries. According to the
World Bank’s 2012 study of countries and their tax systems, Italy ranks
170th for the size of its overall tax rate on companies: a whopping 68 per
cent total tax rate. Labour taxes account for about two-thirds of that
figure. This is an area crying out for reform – it is an increasingly
unbearable burden for Italy’s entrepreneurs, who should be front and centre
in the new government’s priorities.
Italy’s structural sclerosis means its economic growth potential is zero,
according to Citigroup data (the eurozone’s potential growth rate is 0.8 per
cent). The task for Mr Monti and Corrado Passera, the structural reforms
minister, is to ensure that Italy closes that growth gap.
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