Italy Must Change Business Climate: Ex-Ambassador

New Prime Minister Mario Monti must push for structural reform to make Italy more business-friendly, which will help its economy grow, a former U.S. ambassador told CNBC Wednesday.

Statue and Italian Flag in front of Vittorio Emanuele monument.
Ian Cumming | Getty Images
Statue and Italian Flag in front of Vittorio Emanuele monument.

"It’s a situation that needs to get under control, for sure, and the hope is with the new Monti government that Italy will begin to work on its structural problems," said Ronald Spogli, ambassador to Italy and San Marino from 2005-2009.

Enacting an austerity budget won't be enough, he said. Despite being the world's eighth-largest economy, Italy has had chronic low economic growth.

"It’s just not a very easy place to do business in and they’ve got to change it," he said.

Consider the labor market. "It's extremely difficult to lay anybody off. As a result, people are extremely reluctant to hire new employees," said Spogli. "It has arguably the most rigid labor market on the entire continent."

Italy also has a pension system that needs to be revised and a legal system "that requires in some cases eight to ten years for the adjudication of even the most normal commercial contract," Spogli said.

Monti is a technocrat who "gets it to a greater degree than most people in Italy" when it comes to the importance of U.S.-style capitalism, according to Spogli, and he might catch a break with the Italian people and the legislature just because he is not Silvio Berlusconi, the former prime minister and "lightning rod to the left."

But Italy also needs the European Central Bank to "take a more aggressive stance" as a way of building market confidence, Spogli stressed.