Even as Prime Minister Mario Monti of Italy pushed through a plan to make it easier to fire workers, a split within his governing coalition over the measure could endanger his government even before elections are held by May. And that, in turn, could boost risk for investors.
Bloomberg reported that the change in labor laws to allow easier firings in a high-unemployment atmosphere was not popular to begin with, either with labor unions or with the Democratic Party, a member of the three-party coalition. Still, Monti managed to pass this fourth major change to try to avoid economic meltdown—but Democrats, having second thoughts on the matter, are now talking of reversing the measure in Parliament.
Marc Ostwald, a fixed-income strategist at Monument Securities in London, was quoted saying, “The labor market reforms are critical for Italy, and it is equally no surprise that Monti is having a rather more difficult time in getting agreement on these. He has already had to make a lot of concessions and the Italian bond market does appear to be rather sensitive to any negative related news.”
So far Monti has pushed through, in addition to the labor change, a 20-billion-euro ($26.5 billion) austerity plan to eliminate the deficit, a measure designed to boost competition and a set of changes intended to cut red tape. While thus far Monti’s government has seen the rate on bonds fall substantially, that could change if the stability of his government is threatened.