Italian budget in home stretch, unions on warpath

ROME (Reuters) - Italy's austerity budget, vital for Rome's attempts to get its accounts in order and do its part to try to save the euro from collapse, enters its final stretch this week with unions still on the warpath.

The 33 billion euro ($43 billion) package of cost cuts and new taxes was passed by the lower house Chamber of Deputies on Friday after Prime Minister Mario Monti's one-month-old government won a confidence vote earlier in the day.

It has now moved to the Senate, whose leader Renato Schifani promised on Sunday that it would go through before Christmas. Most observers expect it to be definitively approved on December 23.

The measures, which have been hailed by Italy's European Union partners, will cut public spending, raise taxes and reform pensions in a bid to restore market confidence in the country's finances and balance its budget by 2013.

The collapse of investor confidence during the summer under Silvio Berlusconi's government thrust Italy to the centre of the euro zone debt crisis, and pushed its borrowing costs to untenable levels on bond markets.

The austerity plan, challenged by unions and the opposition Northern League, has been in effect since Monti's government approved it on December 4, but needs full parliamentary approval within 60 days.

Labour Minister Elsa Forneo, who like all members of the Monti government is an expert in her field and not a politician, served notice to unions on Sunday that they would have to be flexible.

"NOT WRITTEN IN STONE"

She told Corriere della Sera newspaper on Sunday that a key article of Italy's labour statute "was not written in stone."

Known as article 18, it has become a sacred cow for unions and a cornerstone of their battles because it makes it extremely difficult to dismiss workers in companies with more than 15 employees. It also says that workers judged by a labour court to have been wrongfully dismissed must be re-instated with full past payment.

"I'm not saying that there is a preconstituted recipe (for labour reform) but also that nothing is written in stone and so I invite unions to take part in honest and open intellectual discussions," Fornero told the newspaper in response to a question about article 18.

Susanna Camusso, head of Italy's largest union confederation, told Reuters in an interview last week that the country risked a "social explosion" over austerity measures.

Camusso said she was firmly opposed to any changes in article 18 and that unions planned more protests.

Raffaele Bonanni, leader of another union, showed his contempt by telling reporters that the package "could have been written by my uncle, who knows nothing about economics."

Pressure from the centre-right has forced Monti to delay plans to liberalise some sectors, such as pharmacies, taxis, lawyers and notaries, which are still protected by unions and guilds who want to keep their numbers low.

Polemics with unions aside, Monti has his work cut out for him just satisfying the political parties that back him

The two biggest groups, former Prime Minister Berlusconi's centre-right People of Freedom Party (PDL) and the centre-left Democratic Party (PD), support the government, although both want it to soften the plan's impact on their core supporters.

Both parties know that despite their misgivings they cannot sabotage the government without risking a catastrophe that would probably lead to a sovereign default by the euro zone's third biggest economy, and could destroy the single currency.

Monti was boosted by Friday's parliamentary confidence vote and said he was "absolutely not in despair," but his popularity has been slipping as the package becomes better known.

According to a poll in Sunday's Corriere della Sera, his popularity has slipped to 46 percent from 61 percent a week ago.

But Monti, a former European commissioner, has made it clear he is not looking for popularity but was mandated by Italy's president to solve the debt crisis and reassure markets.

On Friday night, problems were highlighted again when the ratings agency Fitch placed Italy and five other euro zone countries on a downgrade warning in the absence of a "comprehensive solution" to the debt crisis.

(Editing by Mark Trevelyan)

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