Monti mounts razor campaign

Mr Monti, whose cabinet approved the package yesterday, was due to present the plan to the legislature overnight in Rome, and parliament is expected to vote on it by Christmas. The Prime Minister has vowed "shared sacrifices" as he seeks to cut the euro zone's second-biggest debt and regain investor confidence after Italian borrowing costs exceeded the 7 per cent threshold that led Greece, Ireland and Portugal to seek aid. The yield on Italy's 10-year bonds fell to 6.68 per cent on Friday.

"The huge public debt of Italy isn't the fault of Europe, it's the fault of Italians," Mr Monti, who took over last month after Silvio Berlusconi resigned, said yesterday. "Together, we will make it."

Italian bonds rallied for the first week in eight last week amid optimism that EU policymakers might take steps to ease the crisis at a Thursday summit, when the difference in 10- year yields with German bunds fell 45 basis points to 4.55 percentage points. Still, Italy is paying the highest rates in more than a decade on its debt and offered more than 7 per cent on new bonds for the third time in a week on November 29.

Mr Monti's plan ties pensions to contributions rather than to a worker's last salary, resurrects property taxes and includes a levy on luxury goods. His task in pushing through Italy's third austerity package since July may be complicated by a recession next year and road bumps in parliament and in the streets as protesters rally over a perceived lack of fairness.

"You can't choke the economy by imposing more taxes to keep paying Mario Draghi's pension," Edward Luttwak, a senior associate at the Centre for Strategic and International Studies in Washington, said recently. "Draghi gets a 'baby pension' of about ?15,000 a month from the Italian Treasury. Only by cutting these golden pensions will the government be in a position to be more rigorous with other people's pensions."

European Central Bank president Mr Draghi's early retirement from the Treasury, which he left in 2001, is an example of the privileges enjoyed by public officials.

Mr Monti said the new package would eliminate some pension privileges. He also said that in solidarity with Italians making sacrifices, he would give up his salary as premier and finance minister.

Mr Draghi had to take a 50 per cent pay cut when he joined the ECB from the Bank of Italy, where he earned ?757,714 last year as governor. That is five times as much as US Fed chairman Ben Bernanke's salary. The average monthly gross salary for an Italian is ?2033.

"To reduce waste would require intervening decisively on the privileges that thousands of laws guarantee state workers," Italian journalist Mario Giordano said. In Sicily, civil servants can retire at age 40 with just 20 years of contributions, he said.

Italy's economy, whose growth had trailed the European Union average for a decade, would contract 0.4 per cent to 0.5 per cent next year, Deputy Finance Minister Vittorio Grilli said.