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Italy's new PM to focus on growth

Prime Minister Enrico Letta promised to press for a change to the European Union's focus on austerity.

Italian Prime Minister Enrico Letta. Picture: AFP.

ROME - Italy's new Prime Minister Enrico Letta promised to press for a change to the European Union's focus on austerity and pursue economic growth and jobs as his government sought backing from parliament on Monday, ending months of political gridlock.

Speaking ahead of a confidence vote in the lower house, Letta said Italy could not afford to focus simply on trying to cut its huge public debt and needed a new emphasis on lifting the economy out of recession.

He will be backed by his own centre-left Democratic Party (PD), Silvio Berlusconi's centre-right People of Freedom (PDL) party as well as centrists led by former prime minister Mario Monti, with a second vote in the Senate on Tuesday.

"We will die of fiscal consolidation alone, growth policies cannot wait any longer," he said, describing the country's economic situation as still "serious" after more than a decade of stagnation.

Letta, a 46-year-old moderate with strong contacts outside Italy, pledged to stick to Rome's budget commitments to its European Union partners, announcing he would visit Brussels, Paris and Berlin this week.

Stefano Fassina, the PD's main economic spokesman, said Letta should renegotiate Italy's budget target to gain more breathing room. "Other countries have done it and so should we," he said in parliament.

Letta was pushed into a coalition with Berlusconi after the centre-left fell short of a viable parliamentary majority in February's inconclusive election, which left no side with the numbers to govern alone.

He now faces a battle to maintain the unity of his government while passing potentially difficult reforms and keeping control of public finances.

Berlusconi, who is fighting legal battles over a tax fraud conviction and charges of paying for sex with a minor, will not be in the cabinet himself but many on the left find the idea of working with his centre-right party abhorrent.

Financial market reaction to Letta's appointment and the end of months of political stalemate since the election has been positive, with bond yields falling and shares rising.

Italy's cost of borrowing dropped to its lowest since October 2010 at an auction of mid and long term bonds, offering relief not only to the Treasury but also to companies whose own borrowing costs are affected by government bond yields.

AVOIDING CONFLICT

In a speech that ranged from tax to constitutional reform and touched on issues including tourism, prisons and two Italian marines at the centre of a diplomatic standoff with India, Letta avoided points of conflict between members of his coalition.

He made no reference to a law tackling conflicts of interests, which was promised by his PD party before and after the election but would be unacceptable to media tycoon Berlusconi.

Responding to centre-right demands for an unpopular housing tax to be scrapped, he said payments due in June would be halted although he did not promise to abolish the tax altogether as Berlusconi has demanded.

He also said he hoped a planned increase in sales tax, which would see the main rate rise from 21 percent to 22 percent in July, could be delayed and said payroll taxes that dissuaded companies from hiring should be lowered.

He did not indicate how he would pay for these tax changes, which would require billions of euros.

The current electoral law, which contributed heavily to the inconclusive election result in February would be changed before the next election and he proposed a special commission to consider other political and constitutional reforms.

He said he would review the progress of these reforms in 18 months' time and if he felt that he had been blocked by other parties he indicated he might resign.

Letta's cabinet, which includes a record seven women and Italy's first black minister, was shaped partly in response to disillusionment with political elites shown by the success of the anti-establishment 5-Star Movement in the last election.

Letta paid tribute to two police officers shot by an unemployed man on Sunday as his cabinet was being sworn in and called for a calmer and more responsible political climate after the venomous divisions brought out during the election campaign.

Italy's economy has been sluggish for over a decade with gross domestic product now lower than it was in 2001, companies stifled by high taxes and red tape, and youth unemployment in some areas as high as 40 percent.

All this has fed into public bitterness directed at politicians, several of whom have been jostled by angry crowds.

In a concession to the growing mood of disillusion with the traditional political elites, he said that the supplementary parliamentary salaries and other benefits enjoyed by ministers would be scrapped.

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