Italy aims to avoid Greek-style collapse

As he prepared to present the package to parliament for approval, Monti said it would restore Italy's credibility and help solve the eurozone debt crisis.

He also cautioned against the creation of new divisions in Europe, as France and Germany met to discuss controversial plans for deeper economic integration.

“Without this package we believe Italy will collapse, Italy will become like Greece, a country for which we have a lot of sympathy but which we do not want to become,” Monti, a former EU commissioner, said at a press conference.

He reiterated that Italy would meet its key target of balancing the budget by 2013 — in contrast to more troubled eurozone neighbors.

“We must absolutely avoid that the euro, which was created to unite the people of Europe, ends up dividing them,” Monti said.

“A demarcation around the eurozone or between strong economies and less strong economies, any distinction like this is worrying,” he added.

Financial markets meanwhile rallied and the European Union praised Italy.

Stocks in Milan were up around 2 percent and the differential between the rates on Italian 10-year government bonds and benchmark German ones, which had risen to record highs in recent weeks, narrowed to below 4 percent.

Borrowing costs were also sharply down with the yield on Italian 10-year bonds at 6.366 percent compared to 6.661 percent late on Friday.

Monti, an economics professor who came to power just three weeks ago, said the plan would save 20 billion euros (US$27 billion) but would not prevent the economy from slipping back into recession next year.

Most controversially the plan includes a pension reform that will increase the minimum pension age for women to 62 from 2012 and see both sexes retire at 66 by 2018 — as well as increase the number of years men have to pay dues.

All pensions except those below 960 euros a month will also not be indexed to inflation for 2012 and 2013 — a measure that has ignited trade union fury.

The package will increase and re-introduce taxes on housing and luxury items and includes an option to raise value-added tax if necessary from 2012.

It will also reduce some budget cuts and introduce some tax breaks and loan guarantees for small businesses that are suffering in the current environment.

Monti was due to present the plan to parliament later in the afternoon.

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