New Italian PM Letta to meet German leader Merkel

Associated Press
Italian Premier Enrico Letta speaks at the Senate in Rome, Tuesday, April 30, 2013. Italian Premier Enrico Letta's cross-party government won a final vote of confidence vote in Parliament on Tuesday, giving life to a grand coalition that aims to put aside decades of animosity to return the eurozone's third-largest economy to growth. (AP Photo/Alessandra Tarantino)
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BERLIN (AP) — Enrico Letta made his first trip abroad as Italy's new premier on Tuesday, visiting Germany in his bid to persuade European leaders to ease the pressure on his country to pursue painful austerity measures.

Letta, who has pledged to turn his country's stalling economy around, was meeting German Chancellor Angela Merkel in Berlin late Tuesday, only hours after winning his final vote of approval by the Senate in Rome.

Merkel, a strong advocate of structural reforms, spending cuts and deficit reduction across Europe, has been much criticized during Italy's election campaign for her tough stance.

Newspapers and politicians — including some now backing Letta's coalition government — have accused outgoing Premier Mario Monti's government of being a mere stooge to "la Merkel" in Berlin.

Analysts say Letta also seeks to reassure financial markets about his government's seriousness by working closely with Germany, Europe's biggest economy.

However, Letta can expect little leniency from Merkel. The conservative leader — who is seeking re-election in September — has made it clear that no Italian government should be allowed to fall significantly behind on the reforms and deficit targets agreed within the 17-nation eurozone.

European Union Commission President Jose Manuel Barroso was quick to congratulate Letta following the Senate's approval Tuesday, but reminded him of his "commitment to carry on the process of necessary reforms."

A spokesman for the EU's top economic official, Commissioner Olli Rehn, also dashed any hopes for leeway. "We have full confidence in the government's determination to achieve the goals agreed for this year," Simon O'Connor said.

The center-left Letta has pledged to respect Italy's international commitments, but has also announced the immediate suspension of an unpopular tax on primary residences while he makes it fairer to less affluent taxpayers. He also pledged not to raise the sales tax and to reduce some payroll taxes, but has yet to explain how to handle the resulting shortfalls.

"Reducing taxes is a priority," Letta said Monday, promising he would "pinpoint a strategy to revive growth without interfering with the process to heal finances."

The 46-year-old premier will also take his message to Paris, where he meets Wednesday with President Francois Hollande, and then to Brussels. The European tour aims also to demonstrate that this government wants to remain at the heart of the decision-making in Europe.

Asking for patience from his own people, Letta said before the Senate vote that the road to economic recovery and it is unreasonable to expect that "by tomorrow we can give immediate responses" to Italy's economic woes.

Italy, the eurozone's third-largest economy, has suffered years of anemic growth and is currently in recession. The unemployment rate is 11.5 percent and almost 40 percent of those younger than 25 have no job, according to EU statistics. Italy's debt burden has grown to over 120 percent of the country's annual economic output — trailing only Greece's debt level.

The EU's austerity policies of spending cuts and higher taxes since the bloc's debt crisis erupted in 2010 has tried the patience of citizens in Greece, Portugal, Spain and Italy, leading to backlashes at the polls.

EU leaders like Barroso have already hinted that they are considering granting economically struggling countries like Italy or Spain more time to meet their targets to avoid choking off growth.

Letta leads a still to be tested grand coalition that includes former premier Silvio Berlusconi's conservatives.

"Italy still faces a significant risk from the potential fragility of the new coalition government and its temporary stability being endangered by conflict between its various factions," said IHS Insight analyst Raj Badiani.

Already, one key proposal — to put on hold a property on primary residences — was being picked apart by some of Letta's key partners.

Berlusconi said he will support the government only if the tax is repealed. But Italy's three main unions balked at an across-the-board cut, saying the money is needed for key programs and should be abolished only for Italians with one residence. And the European Commission made clear it expects Italy to keep its budget deficit targets for the year even with reduced revenue from the tax.

The tax on first homes generates €4 billion ($5.2 billion) a year, and the decision to suspend June payments will cost the state €2 billion at a time when the government urgently needs to find money to pay for a fund for workers on temporary layoffs.

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Nicole Winfield reported from Rome. Colleen Barry contributed from Milan.

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