Italy Faces ‘War’ in Economic Revamp, Monti Warns

Prime Minister Mario Monti said Italy faced a “war” at home and abroad as his government pushes to revamp the euro-zone‘s third-biggest economy and extricate it from the region’s debt crisis.

The premiere’s remarks at a banking conference in Rome came as allies of the premier’s predecessor, Silvio Berlusconi, began clamoring for the controversial billionaire to run for office in the next election. That prospect is likely to unnerve investors and EU authorities who pushed for Mr. Berlusconi’s ouster in November.


EPAPremier Mario Monti, left, met with his predecessor—and potential successor—Silvio Berlusconi in November.

In a strongly-worded address to that departed from the premier’s sober speaking style, Mr. Monti sketched a stormy picture of the social and political tensions gripping Italy. Mr. Monti’s government has proposed slashing spending this year by €4.5 billion ($xx billion), cutting public sector jobs and other public services that have long underpinned Italian society.

Italy “has embarked on a brutal war,” Mr. Monti said. He also said the country’s struggle extended beyond Italian shores, as it fights foreign prejudices over the Italy’s ability to tackle its high debt level and carry out long-term structural changes to its economy.

Political parties are already girding for the end of Mr. Monti’s term next spring, worried the premier’s unpopular measures are fueling a surge of public support for anti-establishment parties. Aides to Mr. Berlusconi say his return to frontline politics could fire the base of a political party that has been bleeding voters ever since he withdrew from the political stage.

“Many people are asking” Mr. Berlusconi to run for premier in the next elections, said Angelino Alfano, head of Mr. Berlusconi’s People of Freedom Party. “In the end I believe he will decide to enter the fray.”

“My predecessor Berlusconi underwent extremely unpleasant pressure that I imagine was close to humiliation,” Mr. Monti said on Wednesday, adding that Italy risked “giving up a good part of its sovereignty.”

Mr. Berlusconi stepped down in November under pressure from financial markets, EU leaders and members of his own party who demanded a steadier hand to guide Italy through the euro-zone debt storm.

Mr. Monti’s swift appointment helped temporarily stem investor flight from Italian bonds, but recent months have seen Italy’s borrowing costs resume their climb.

Italian officials say the country is misunderstood abroad. Italy has maintained a tight fiscal policy in Europe; it has high levels of private household wealth; and its banks didn’t require the large-scale government bailouts that occurred through most of the West. Outside of Italy, however, investors continue to question how the country will pay down its €1.9 trillion debt, equivalent to 120% of GDP, when its economy is contracting.

The difference in interest that Italy pays to service its debt compared to Germany “is far above what would be justified by the fundamentals of our economy,” said Ignazio Visco, governor of the Bank of Italy. Mr. Visco called on EU authorities to make “better use” of euro-zone bailout funds to “contain borrowing costs within coherent limits that are in line with the underlying conditions of the different economies.”


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