Italy Will Die From Austerity Alone: Prime Minister

Giorgio Cosulich | Getty Images News | Getty Images

Italy must focus immediately on reviving its economy and it will lobby its European partners to obtain more growth-oriented policies at the EU level, new Prime Minister Enrico Letta said in his maiden speech to parliament on Monday.

Letta said that later this week he would visit leaders in Brussels, Paris and Berlin to demonstrate the importance Italy attached to EU-wide economic strategy.

"We will die of fiscal consolidation alone, growth policies cannot wait any longer," Letta said, noting that the country's economic situation remains "serious" after more than a decade of stagnation. However he pledged to stick to Italy's budget commitments to its European Union partners, announcing he would visit Brussels, Paris and Berlin this week.

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Speaking ahead of a confidence vote in the lower house, Letta added that Italy must reform its outdated and inadequate welfare system.

"We need a welfare system which is more universal, more focused on young people and women, extending it to those who are not covered, especially temporary workers," he said, adding that he would work with trade unions to find ways to cut unemployment.

However, Letta announced that the first measure of his government would be to reduce the salaries of parliamentarians.

Responding to Silvio Berlusconi's demands for an unpopular housing tax to be scrapped, Letta said payments due in June would be halted prior to a wider overhaul of property taxes but he did not promise to abolish the tax altogether.

He also said he hoped an increase in sales tax, which would see the main rate rise from 21 percent to 22 percent planned for July, could be delayed. He added that payroll taxes for companies that hire the young and unemployed should be reduced.

Letta also promised to change the current electoral law, which contributed heavily to the inconclusive election result in February and left Italy in political limbo for two months as the parties wrangled over forming a government.

He said he would review the progress of reforms in 18 months' time and if he felt that he had been blocked by other parties he would not hesitate to assume the consequences, an apparent suggestion that he would resign.

Financial market reaction to Letta's appointment and the end of months of political stalemate after last February's inconclusive election was positive, with bond yields falling and shares rising.

(Read More: Italy's New Government Passes First Market Test)

The FTSE MIB, Italy's benchmark stock exchange traded more than 2 percent higher on Monday afternoon, while Italy's cost of borrowing dropped to its lowest since October 2010 at an auction of medium and long term bonds.

But Letta, who was pushed into a coalition with Berlusconi's center-right People of Freedom (PDL) party after the center-left fell short of a viable parliamentary majority in February, now faces a battle to maintain the unity of his government while passing his potentially difficult reforms.