Italian Prime Minister Mario Monti, making his maiden speech to parliament on Thursday, warned that Italy faced a serious emergency which could help decide the future of the European Union.
Here are some of the highlights of his speech, which comes ahead of a confidence vote in the Senate at around 7:30 p.m. British time.
FUTURE OF THE EURO
The government recognises that it was formed to resolve a serious emergency ..
Europe is living its most difficult days since the end of the Second World War.
The European Union faces its most difficult challenge since its foundation. A failure wouldn't only hurt we Europeans, it would cancel the prospect of a better balanced world in which Europe can better transmit its values ... in a world that is ever more in need of effective governance.
We mustn't deceive ourselves that the European Union project can survive if monetary union fails. The end of the euro would unravel the single market, its rules, its institutions, and would take us back to where we were in the 1950s.
There has been a defect of governance in handling the crisis in Europe ... Only if we can avoid being seen as the weak link of Europe can we contribute to European reforms. Otherwise we'll be part of plans that we haven't contributed to, drawn up by countries with national interests that don't necessarily include a strong Italy.
The future of the euro will partly depend on what Italy does in the coming weeks. Partly, not only, but partly. International investors hold 50 percent of our public debt. We have to convince them that we have taken the road of a gradual but lasting reduction of our debt-to-GDP ratio.
If we fail, if we don't find the necessary unity of purpose, the spontaneous development of the financial crisis will impose much harder conditions on all of us but especially the weaker sections of the population.
The programme I am submitting to you today has two parts which have different objectives and timeframes. On the one hand a series of measures to confront the emergency, ensure the sustainability of public finances, restore confidence in the capacity of our country to react and support durable and balanced growth. On the other, a project to modernise economic and social structures with concrete measures so as to extend opportunities for companies, the young, women and all citizens in a context of social and regional cohesion.
NEED FOR GROWTH
To reduce public debt we need to focus on three pillars: fiscal rigour, growth and fairness.
In the last 20 years Italy has done a lot to consolidate its public finances ... the absence of economic growth has cancelled out the sacrifices made. We must set ourselves ambitious targets for a balanced budget, for a fall in the debt-GDP ratio, but we wouldn't be credible in pursuing and maintaining these objectives if we can't make the economy grow again.
What is needed to grow again has been known for a long time. The best Italian research centres laid out the necessary measures long before they were inserted in the documents we have received from European institutions. There is no European originality in identifying what Italy needs to do. It's a problem of the Italian system to succeed in deciding and implementing the things that we Italians knew were necessary for growth ... There is no 'them' and 'us'. Europe is us.
What is needed are measures to free up the economy, to help the birth of new companies and help them to grow, improve the efficiency of public sector services, encourage entry into the labour market of young people and women -- the two great wasted resources of our country.
It's true that these do not have an immediate effect on growth ... but evidently the later you start the later the benefits of the reforms arrive. And, above all, the decisions of the investors that buy our public bonds are driven partly by immediate possibilities of profit but we must also get it into our heads that they are also driven by their expectations of what Italy will be like in 10 or 20 years when those bonds mature.
Reforms that have a gradual effect on growth influence investor expectations and so can result in an immediate reduction in interest rates, with positive consequences on growth.
If we fail ... the spontaneous evolution of the financial crisis will expose everyone, but especially the weaker sections of the population, to much tougher conditions.
DEFICIT CUTS/BALANCED BUDGET
Parliament is discussing a constitutional proposal to introduce binding commitments on balanced budgets of public administrations in line with the commitments taken with the euro group. Adopting a rule of this kind can help preserve over time the balanced budget programmed for 2013 and prevent the results obtained by intense restructuring efforts being eroded in successive years as has happened in the past.
It will be appropriate to study the experience of some European countries which have entrusted the task of evaluating whether the rule has been followed to independent authorities, given that in this respect credibility is an essential requisite both for ourselves and the rest of the world.
In the short term, we will fully implement the budget measures approved in the summer, supplementing them with measures outlined in the letter sent to European authorities. In the course of coming weeks we will evaluate the necessity of further corrective measures.
COST OF POLITICS
Given the sacrifices required of citizens, interventions to contain the cost of operations of elective bodies are unavoidable. Those who hold elective functions, politically appointed directors of private companies funded by public resources and those who represent political and administrative institutions at every level, should act with sobriety. Attention to containing costs will give an immediate and concrete signal.
REGIONAL ADMINISTRATIVE REFORM
It is necessary to reduce the overlap of decision making levels and work in favour of integrating management of smaller local bodies. Reorganising the responsibilities of the provinces can be implemented through parliamentary legislation. The planned specific change to the constitution can complement this process, allowing their complete elimination as is included in the commitments made to European authorities.
With the consent of the social partners (unions and employers) the institutions of the labour market will have to be reformed to get away from a dual labour market where some are too protected while others are totally without protection or insurance if the case of unemployment. The reforms in this field must have the twin goal of making our system of job protection and welfare fairer and also facilitating productivity growth, taking account of the different conditions that particularly characterise the Italian economy.
In any case, the new rules will be applied to new contracts ... while current contracts will not be modified. We intend to continue to move the focus of collective bargaining to the company level, as the European institutions ask, and as the social partners have begun already to do. This must be accompanied by a comprehensive system of support for those without jobs in order to favour mobility and the possibility of people to find new jobs. More mobility ... is an essential condition to achieve the transformation of Italy's economy and boosting growth.
It is necessary to close the gulf that has been created between (the conditions offered by) temporary and permanent contracts, overcoming the risks and the uncertainties that deter companies from using the latter.
Taking account of budgetary constraints, it's necessary to launch a systematic reform of welfare benefits aimed at guaranteeing every worker that he will have protection in the case of temporary loss of employment.
Over previous years, the pension law has been the subject of repeated interventions which have made the Italian pension system among the most sustainable in Europe and among the most capable of absorbing negative shocks. The old age pension age is already above that of French and German workers, taking account of the so-called retirement 'windows.' But our pension system is characterised by wide disparities in treatment between different generations and categories of workers.
Respect for institutional rules and the struggle against illegality will be a priority for the government. To recover confidence in the future, we must have confidence in the institutions of a state based in law.
This can be done efficiently paying particular attention to monitoring accumulated wealth and not only revenues produced.
The maximum limit for the use of cash should be reduced further, measures favouring the use of electronic payments are needed.
We intend to re-examine the weight of taxes on property assets. Among the main European countries, Italy has a particularly low level of property taxation. The exemption of principal residences from property taxes is a peculiarity, not to say an anomaly in our tax system compared with international standards.
DIVESTMENTS TO BE DECIDED BY APRIL 30
The letter of intent sent to the European Commission foresees revenues of at least 5 billion euros a year over the next three years. To achieve this, (we will draw up) a calendar setting out the next steps in the plan regarding divestments and the evaluation of publicly owned assets.
The tax burden in Italy is high by historical and international standards.
As the effects of the spending review become apparent over time, it will be possible to plan a gradual reduction in the tax burden. But even before, while maintaining the same tax intake, it will be possible to modify the composition of the tax system to make it more favourable to growth.
A reduction in taxes affecting labour and productive activities, financed by an increase in consumption and property, would support growth without weighing on public finances.
PRIVATE INVESTMENT IN INFRASTRUCTURE
Economic activity could be stimulated by including private capital in infrastructure projects. The fiscal incentives set down in the stability law are a first step but there need to be changes to the regulation of project financing to reduce the risks associated with administrative procedures.
It will be necessary to try to increase the level of education among the workforce which is clearly below the European average, even among very young people. There will be specific measures aimed at schools and the least developed areas of the country, identifying requirements partly through tests drawn up (at the European level) and a review of the system of the selection, hiring and conditions offered to teachers.
We must stimulate competition with particular reference to a reorganisation of rules governing the regulated professions ... also regarding minimum tariffs.
(Reporting By James Mackenzie, Gavin Jones)