Italy's largest business federations' head calls for rigorous reform to boost economy

Photo: Italy's largest business federations' head calls for rigorous reform to boost economy

Addressing a packed hall of business leaders in Rome, Luca Cordero di Montezemolo said business should reap the greatest benefit from a pledge by Premier Romano Prodi to reduce labor costs by 5 percent during the first year of his newly installed government.

Montezemolo also urged the government to take steps to reduce energy costs, simplify bureaucracy and improve infrastructure, the AP reports.

He called for "shock therapy" to improve Italy's ailing public finances and urged the government to make drastic spending cuts to reduce public debt - Europe's highest at more than 106 percent of GDP.

Business should get the biggest break from the promised payroll tax cut to free resources for investment and to spur competitiveness, Montezemolo said.

He also called on the government to reduce labor costs another 10 percent over the course of its five-year term.

High labor costs, lagging productivity and competition from Asia in Italy's traditional sectors such as clothing and shoes have caused the economy to underperform the rest of the euro zone during most of the past decade.

Gross domestic product was flat in 2005,  but rose a quarterly 0.6 percent in the first three months of the year in what is being hailed as a sign of recovery.

Prodi's government has not yet said how the move to cut payroll taxes will be funded and how much of the reduction would benefit businesses as opposed to workers,  opening the stage for a public tug-of-war between industry and unions.