By Gavin Jones
ROME (Reuters) - A formidable battle is taking shape over the future of Italy's labor market between Prime Minister Mario Monti, a detached, professorial economist and Susana Camusso, the pugnacious, chain-smoking leader of the country's largest trade union.
After years of division the three main union confederations appear to have united against reforms Monti says are vital to regain financial markets' faith, and analysts say he must move fast while his popularity is high and the sense of emergency over Italy's debt crisis is acute.
Led by Camusso, the unions not only have the ability to put millions on the streets but also have a powerful lobbying presence that may shake the parties Monti depends on for his parliamentary majority as the scale of changes become clear.
The prime minister has yet to give details of his reform program, but he has made clear that at the top of his agenda is re-writing outdated labor rules that hamper employment, productivity and investment.
"We have to get away from a dual labor market where some are too protected while others are totally without protection or insurance in the case of unemployment," Monti said in his maiden speech to parliament.
However, the blonde, husky voiced Camusso, the first female leader of the left-wing CGIL, rejects his claim that only by easing firing restrictions for regular, salaried employees can he give rights and job prospects to the young and unemployed.
"Monti is the only one who is too protected," she told Reuters in an interview this month. "I would like him to introduce me to these 'too-protected' workers."
The three main union confederations - Camusso's CGIL and the more centrist CISL and UIL - launched a spate of strikes against an austerity plan raced through this month to head off soaring borrowing costs, but their opposition to labor reform is likely to be much tougher.
This is because it threatens the interests of the unions' core membership which, along with pensioners, is made up of middle-aged or elderly workers in medium sized to large companies.
They are often accused of defending those already protected while neglecting the young, so-called "precarious" workers who have neither rights nor representation.
Nine out of 10 first jobs in Italy are now taken under a temporary contract offering no employment protection, whether the worker is an unskilled laborer or a graduate. Real starting salaries are at the same level as in the 1980s.
"Italy is an elderly society and the unions are strong because they represent the median voter, who is over 50 and is looking at his retirement of he's already retired," said Francesco Giavazzi, a former Treasury official and now economics professor at Milan's Bocconi University.
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Around 30 percent of Italians are members of a union, down from 43 percent at the height of union power in the 1970s but still well above the 20-25 percent in Britain, 15 percent in France, and less than 10 percent in the United States.
The CGIL (Italian General Labour Confederation) has almost 6 million members, over half of whom are pensioners, compared with 4.5 million for the CISL and 2.2 million for the UIL. With Monti supported by the main parties across Italy's political spectrum the unions are, for now, his only real opposition.
Camusso, 56, who worked her way up from the CGIL's hardline metal-workers' branch, told Reuters that Italy risked a "social explosion" over Monti's austerity measures [ID:nL6E7NE2WL], and warned him not to try to abolish the controversial article 18 of Italy's labour statute.
Adopted in 1970, this norm obliges firms with more than 15 employees to re-instate salaried workers ruled to be wrongfully dismissed, with full payment of lost salary. It has become a symbol of Italy's "dual" labour market, because no such protection exists in small firms or for the growing legions of young people on temporary contracts.
Union clout has declined in recent decades, undermined by unemployment, the diminishing weight of large industrial firms where they thrived, cheap immigrant labour and companies that are increasingly able to move output abroad.
This process has been exacerbated by chronic disputes within the movement itself, with the smaller unions often coming to terms with employers' efforts to decentralize wage bargaining and leaving the hardline CGIL isolated in its opposition.
Yet Monti's determination to tackle the pension system and the labour market seems to have united the three confederations and given them a new lease of life.
Paolo Feltrin, a union expert and political science professor at Trieste University, said the unions' room for maneuver was limited by Italy's critical debt situation, but it would be wrong to consider them a spent force.
"They have lots of money and influence, their membership is still high and they can still mobilize workers," he said.
Having replaced the scandal-plagued Berlusconi as Italy's debt crisis span out of control, Monti still has high popularity ratings and the political parties feel obliged to back him.
Yet their support is already becoming more grudging and qualified, and if Monti's popularity wanes the unions may be able to exercise their powerful lobbying influence to block him.
"The unions can hijack labour market reform not by strikes directly, but through their ability to influence the political balance," said Giuliano Cazzola, a former CGIL official and now a lawmaker with Berlusconi's People of Freedom party.
The CGIL holds huge sway over the largest opposition Democratic Party (PD), which Monti depends on for his parliamentary majority. PD Leader Pierluigi Bersani has said changing article 18 is "not on the government's agenda," yet ministers have conspicuously declined to confirm this.
Feltrin said the union's capacity as "political lobbyists" was at least as important as their ability to organize strikes and sometimes huge demonstrations.
"If Italy's debt crisis fails to improve, the sense of emergency will remain and Monti will have a better chance of pushing through reforms," he said. "But he will be wrong if he thinks he can do it without coming to terms with the unions."
Already, insults have been flying between Camusso and Labour Minister Elsa Fornero, a 63 year-old university professor who will lead the labour reform effort and who this month broke down in tears at a news conference as she announced pension cuts.
Camusso was unmoved by the tears and said she was "very surprised to see such an attack on workers conducted by a woman." Fornero accused the union boss of raising the temperature to levels not seen since the 1970s and '80s, decades plagued by political terrorism in Italy.
"The unions will stay united and we will see very strong protests," forecast Giavazzi.
(Editing by Patrick Graham)