Monti vows to boost Italy's lagging productivity

(MILAN) - Prime Minister Mario Monti on Monday vowed to boost competitiveness as an OECD report showed Italy is one of the few developed countries where labour productivity has stagnated in recent years.

Monti defined as "alarming" the finding by the Organisation for Economic Cooperation and Development, a Paris-based group of developed world economies, and said the effort to change this was at the heart of his government's agenda.

"Even in the decade preceding the crisis, relative productivity generally improved in competitive eurozone economies. But in Italy, it stagnated," Monti said, referring to the start of the global financial crisis in 2008.

The OECD report showed Italy coming last in a ranking of developed countries in terms of productivity gains since 1995, which means a relative decline of gross domestic product (GDP) per capita compared with other countries.

"This development expanded and affected all sectors. The distance between us and Germany, France or Spain has progressively increased," Monti said.

He pointed out that other eurozone economies saw a "radical readjustment" of labour costs at the start of the crisis while Italy did nothing.

The OECD said the resulting difference in labour costs showed that in Italy there has been "a minimal response of real salaries to recession" despite labour agreements to try to ensure salaries match productivity.

Erik Nielsen, global chief economist for Italian banking giant UniCredit, said in a statement that it would take a 10-percent "internal devaluation" to restore Italian competitiveness and around 20 percent in Spain.

"Politically tricky, of course, but given the strong fiscal position, there is some room here, and if I were a labor union leader then I would consider such a grand bargain in return for pledges on employment," he said.

Monti said the crucial point was that despite all the reforms launched since he came to power in November 2011, government alone cannot lift Italy out of its recession and that companies and employees also need to do their bit.

Italy's trade unions "have been encouraged to put the theme of productivity at the centre of their negotiations," Monti said, inviting trade union leaders "to confront this theme courageously and without prejudice."

Monti said the issue was also at the centre of his meeting on Saturday with Sergio Marchionne, the chief executive of auto giant Fiat.

Fiat's future plans in Italy -- where it has seen a collapse in sales and is the biggest private sector employer -- are causing widespread concern.

Government sources quoted by Italian news agency ANSA said Monti was planning to use the clamour over Fiat as a sort of "bulldozer" for wider negotiations between employers and unions on the issue of competitiveness.