New Italy PM takes anti-austerity push to Germany

Italy's new prime minister faces an early test of his mission to reverse Europe's austerity course Tuesday as he meets German Chancellor Angela Merkel after vowing to stop a policy he says is killing his country.

Enrico Letta's first official trip abroad comes a day after he said his coalition government would act fast to reverse austerity, in a hard-hitting inaugural speech watched closely by Italy's European partners -- including Germany, the continent's austerity champion.

"Italy is dying from austerity alone. Growth policies cannot wait," he told parliament.

The leftist moderate, who took office after a two-month stalemate following February's inconclusive election, promised to deliver results to the recession-hit country within 18 months or "take the consequences".

In Berlin, Letta will be welcomed with military honours before an afternoon press conference followed by talks and dinner with Merkel, who has championed deficit and debt reduction for beating the debt crisis.

He then goes to Paris to meet French President Francois Hollande and Brussels for talks with EU President Herman Van Rompuy.

In an address Tuesday to Italy's upper house of parliament before a vote of confidence in his government he said European countries "cannot be united by the euro alone", but must develop into a political union or risk "a slow decline".

"Of the European project from 20 years ago, only one thing has been carried out: the monetary union. If we only have the euro the rest of the mechanism does not answer to citizens," he said. "We need to make up for lost time."

Europe has been eyeing closer political union in the wake of the eurozone debt crisis, but critics argue countries risk losing their sovereignty.

Letta told MPs on Monday that Europe "must become once more a motor of sustainable growth" -- a reference to his aim to persuade Europe to reverse its disputed austerity policy.

He said the economic situation in Italy -- one of the first countries to fall prey to the eurozone debt crisis -- was "still serious" and that its two-trillion-euro ($2.6-trillion) debt "weighs heavily" on ordinary Italians.

The 46-year-old from the centre-left Democratic Party said he wanted to deal quickly with the social fallout of Italy's longest economic slump in 20 years by tackling unemployment .

He also said a controversial housing tax imposed by former prime minister Mario Monti would be suspended from June.

Letta said the political class must respond to a growing anti-establishment voice fuelled by anger over corruption and politicians' perks at a time of widespread financial difficulties in the eurozone's third largest economy.

The government's first act would be to cut the salaries of ministers who are also members of parliament and are therefore eligible for two salaries, he said.

The markets initially reacted favourably to the speech, with Milan stocks up around two percent on Monday, although they dipped in early trade Tuesday.

Italy also saw significantly lower rates to raise six billion euros at a five- and 10-year bond auction.

Official statistics issued on Tuesday showed that unemployment was stable in March at 11.5 percent, although other figures showed that business confidence dropped sharply this month.

And ratings agency Standard & Poor's kept Italy's sovereign debt rating at "BBB+", following suit after Moody's kept its rating at "Baa2" Friday -- two notches above junk grade -- with a negative outlook.

Italy's debt will rise to 130.4 percent of gross domestic product this year, while the economy will shrink 1.3 percent, according to official forecasts.

Analysts say the coalition is likely to last long enough to push through key reforms but may be brought down by sparring parties within a year or two.