The government of Italian Prime Minister Mario Monti on Friday adopted a controversial liberalisation programme aimed at breathing life into debt-stricken economy that is headed into recession.
Technocrat Monti's aim is to get Italy growing again after years of lagging its eurozone peers so that it can eventually reduce a debt pile equal to 120 percent of Gross Domestic Product, double the 60 percent EU ceiling.
"The cabinet today adopted a draft bill with a package of structural reforms for growth," Monti said at a press conference after the meeting.
He explained that the measures were aimed at boosting competition in several sectors and improving Italy's creaking infrastructure.
"The Italian economy has been held back for decades," he said.
"More competition means more openness, more space for young people, less space for privileges and rent-seeking, more space for merit," he added.
The plan is aimed at ending protectionist practices by taxi drivers, pharmacy owners and petrol stations among others, and has been strongly resisted by trade unions but is seen as a necessary evil by many Italians.
Much of the economy remains sheltered from competition by restrictions and many professions are often organised around associations dating back decades.
With the economy expected to shrink by 1.2-1.5 percent this year according to the Bank of Italy, the government is under pressure to stop the rot and convince markets the country can avoid an international bailout.
Nervous investors have driven Italy's long-term borrowing costs above 6.0 percent and even 7.0 percent at times, levels that economists consider unsustainable in the long term for slow-growing economies with low inflation.
"The Italian economy is very constrained," said Guiliano Noci, a professor at Milan's MIP Politecnico business school.
"Liberalising its main sectors, something which has been talked about for 30 years, could lead to potential growth of two percent," compared to the average growth rate of one percent achieved over the past decade, Noci added.
Standard and Poor's cut Italy's rating by two notches last Friday to BBB+, citing concerns over the economic outlook, and Fitch Ratings has warned it could do the same by the end of the month unless progress is made.
A former EU competition commissioner, Monti came to power in November committed to stabilising Italy's strained public finances through a mixture of tough spending cuts and tax hikes.
At the same time, the prime minister knows that austerity measures alone are not enough and he has stressed the need to get growth going at all costs, calling for big, established corporations to allow room for new businesses.
That view was reinforced by German Foreign Minister Guido Westerwelle, who told the Brookings Institution think-tank in Washington: "By no means do I advocate austerity only" as the solution to the problem in Italy and elsewhere.
"Budget cuts alone will not do the trick. Structural reforms are essential for the creation of new growth. They are also essential for the long-term cohesion of the eurozone," the German minister said.
As the eurozone's leading economy and principal creditor for any further bailouts, Germany has pressed the heavily indebted eurozone countries to quickly introduce structural reforms.
Many sectors in the economy benefit from special privileges, much more than in other countries, Monti said, noting how such favoured groups had the advantage over those trying to get started.
The first targets for change are local service industries and professions, long a bulwark of resistance to innovation in the name of preserving tradition and standards.
Taxis, pharmacies, local public transport, petrol stations, lawyers, doctors, and dentists are among those in the government's sights.
Under the government plans, more taxi licenses would be handed out, more pharmacies would be allowed to open and their working hours freed up, and minimum fees for doctors and lawyers would be scrapped.
The Adiconsum consumer association estimates that opening up such services to competition will save Italian families more than 1,000 euros ($1,290) a year.
The economic daily Il Sole 24 Ore said it was a "historic" day for Italy, congratulating Monti on his courage but also noting that he will need to have solid parliamentary support to succeed given growing opposition.
Last week, tourists and local residents in major cities were left stranded as taxi drivers held wildcat strikes in protest at the planned reforms.
Milan, Naples, Turin, Trieste and Rome were all badly hit and taxi unions threatened a national strike for Monday while Federfarm pharmacy association has warned that there could be "extreme forms of protest" against the changes.
The government is due to meet social partners on Monday to discuss labour reforms -- another hot issue on Monti's agenda as he seeks to push through changes.
AFP