Merkel tells Italy benefits of reforms take time

Reuters News
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Posted: Jul 04, 2012 2:13 PM
Merkel tells Italy benefits of reforms take time

By Roberto Landucci

ROME (Reuters) - German Chancellor Angela Merkel told Italians on Wednesday they could not expect to reap the rewards of economic reforms in just a few months but that the experience of her own country showed it was worth persevering.

Speaking at a news conference in Rome with Italian Prime Minister Mario Monti, Merkel said Germany had gone through tough and unpopular reforms such as raising the retirement age, in order to bring down unemployment and turn around the economy.

"From this experience, and from the experience of eastern Germany, where I come from, which perished due to its economic inefficiency, I know that only competitiveness, only the ability to sell products can create jobs," Merkel said.

An economic laggard in Europe at the start of the century, Germany undertook a series of painful reforms under Merkel's predecessor Gerhard Schroeder which eventually helped cut the number of unemployed from around 5 million when she came to power in 2005 to about 2.8 million today.

Italians are reeling from tax hikes, stagnant wages and rising unemployment and the economy is stuck in a year-long recession which shows no sign of easing. But Merkel urged Monti not to be deflected by domestic criticism of his measures.

"When the successes appear, and they will also appear in Italy, it just takes longer than a month, then the viewpoint is also different," she said.

Monti, who pushed a contested labor market reform through parliament last month, now faces union resistance to a plan to cut public spending which he has promised to formally unveil later this week.

He said the government's goal was to "cut waste and improve efficiency", and rejected a reporter's suggestion that the cuts would be a fresh blow to jobs and the economy.

"I'm not convinced that reducing unproductive public spending will hurt growth, in fact it will give more opportunities for productive employment," he said.

Monti and Merkel, who have met three times over the past two weeks, avoided going into the substance of the deal at last week's European Union summit which will allow EU bailout funds to recapitalize banks and try to stabilize sovereign debt markets.

Monti defended his labor market reform which he admitted "hasn't had a very good press" in Italy, but which he said was well received by "sophisticated" observers abroad, including the European Commission and International Monetary Fund.

He said the reform, which eases restrictions on firing staff, makes temporary contracts more expensive for companies and broadens jobless benefits, had been attacked by unions because they tended to resist change, and by employers because they wanted to inflict a crushing defeat on unions.

The Italian and German labor ministers will work closely to exchange views on best practices to guide future policy decisions, Monti said.

(Additional reporting by Sarah Marsh in Berlin; Writing by Gavin Jones; Editing by Pravin Char)