Nearly full Monti

Italy’s fate is still in the lap of the euro Gods: the European Central Bank, Germany’s Angela Merkel and France’s Nicholas Sarkozy.

Mario Monti’s turnaround plan contains some excellent reforms that Italy had put off for years. The pension revamp is the most significant. People will no longer be able to retire in their late 50s if they have put in the requisite years of service. Instead, they will have to wait until they are 66 — although there will be a six-year transitional period for women. A property tax, irresponsibly scrapped by former Prime Minister Silvio Berlusconi in the final days of the 2008 election campaign, will be reintroduced. There will also be a crackdown on tax evasion, one of Italy’s favourite sports, as well as duties on various luxury items. The new tax on private helicopters is a reminder that Italy really is a rich country.

The new technocratic government is also freeing up markets with a crackdown on anti-competitive behaviour and the opening up of services such as chemists. The really contentious liberalisation — making it easier to hire people on proper contracts and then fire them — has been postponed pending consultations with the unions. But Monti’s government is still hugely popular. Provided he moves fast, he should be able to get his way.

The new PM did not propose a one-off mega wealth tax, which some people have been advocating as a silver bullet which would cut debt from 120 per cent of GDP to below 100 per cent. Indeed, he is planning for gradual progress: one more year of rising debt — a 0.4-0.5 per cent decline in GDP and a fiscal deficit of 1.6 per cent of GDP in 2012 — followed by a balanced budget in 2013.

Italy’s 10-year bond yields fell further to 6.2 per cent on news of the Monti plan. But this is still uncomfortably high. As such, Italy may well need support from the ECB as well as “Merkozy” to keep its borrowing costs down. Fortunately, Monti has come up with a good plan and is not Berlusconi — so he’ll probably get it.