Labor pains in Italy: the European struggle over flexible employment turns bloody.

That evening the professor came home in the usual way, by train from Modena to Bologna, then by bicycle to his house, less than a mile from the station in the city's former Jewish ghetto.

March 19th is the feast of Saint Joseph, which Italians celebrate as Father's Day, so the 52-year-old father of two could have expected his family to toast him at dinner. As a practicing Roman Catholic, he would have appreciated yet another meaning to the day: Joseph is the patron saint of workers, a group to which the professor had devoted his career as an expert in labor law.

A few minutes from home he cell-phoned ahead to his wife, who awaited his arrival at an upstairs window. But just as he reached the front door, two helmeted men on a red scooter pulled up alongside. The man behind drew a pistol, aimed and fired. One shot missed; another grazed its target. Two hit him in the chest and neck. The scooter sped away down the narrow medieval street.

A young man walking by, having heard what sounded like firecrackers, looked over and saw a white-haired man lying on the sidewalk under the arcade. "I thought he might be one of those who go through the streets with their dogs, begging for alms," the passerby later told police.

In fact Marco Biagi, who died on his way to the hospital, was not only a distinguished academic but a prominent commentator and policy maker. That very morning Il Sole 24 Ore, Italy's most influential business newspaper, had published the latest of several articles by Biagi calling for liberalization of the country's labor markets. The next day he'd been scheduled to meet with the minister of labor, with whom he had been working to develop a controversial program of reform.

Death threats had been aimed at Biagi for three years, since he helped draft an agreement making it easier for businesses in Milan to hire immigrants and the handicapped. For a while the government had provided him with a bodyguard. But last fall, for reasons that remain obscure, and despite the protests of Biagi himself, the protection had been taken away.

Two days after Biagi's murder, various news organizations received an e-mail taking credit for the crime on behalf of the Red Brigades, the far-left terrorist group that killed 75 people during Italy's "years of lead" in the 1970s and `80s. The message denounced Biagi as the proponent of "exploitative" policies and an agent of "bourgeois imperialism."

Analysis of gun cartridges found at the scene revealed that the murder weapon was the same 9-mm pistol used to kill Massimo D'Antona almost three years earlier. Like Biagi, D'Antona had been a professor of labor law and a government consultant. The Red Brigades had taken credit for his death, too, reviling the victim's "neo-corporative policies whose social aims coincided with those of the Imperialist bourgeoisie."

Both killings provoked near-universal expressions of outrage from Italian politicians, union officials and business leaders, and widespread anxiety about a possible resurgence of terrorism. Yet the horror that greeted Biagi's murder was also mixed with anger over a contentious national debate that the victim himself had helped to start.

In Italy, whose economy is the eighth largest in the world and the fourth largest in the European Union, only 52 percent of the working-age population has a job. That's ten points lower than the average employment rate in the EU and a consequence of regulation inhibiting what would otherwise be a dynamic labor market.

Following Italy's postwar recovery--the so-called "economic miracle" of the fifties and sixties--newly powerful unions asserted their influence through legislation and collective bargaining to ensure job security for their members, who were concentrated in labor-intensive industries such as automobile manufacturing.

One result of this movement was a 1970 law called the Worker's Statute, Article 18 of which compels employers with 15 workers or more to reinstate anyone deemed to have been fired "without just cause." Since the magistrates who adjudicate dismissal cases almost invariably side with the plaintiffs, the law effectively guarantees lifetime employment.

Consequently, the labor market is especially unwelcoming to Italian youth. Over 30 percent of those under age 25 are out of work, the highest such rate in the Organization for Economic Cooperation and Development. Article 18's 15-employee threshold is hardly an incentive for the nation's many small businesses (seven out of eight have fewer than 15 on the payroll) to increase their hiring.

Italy's excessive labor regulation also contributes to the vast amount of commerce that takes place off the books. According to the International Monetary Fund, up to 48 percent of Italy's labor force is "engaged in shadow economy activities," which account for 27 percent of the gross national product, about twice the average for the OECD as a whole.

The underground economy is of particular concern to workers because its activities yield no contributions to the state pension system, which is currently facing a demographic crisis. As with Social Security in the United States, it's younger generations who must support those no longer working. But Italy now has the lowest fertility rate in recorded history, and the World Bank predicts that the country's working age population will drop 42 percent, from 36 million to 21 million, by the year 2050.

Immigrants could make up the deficit, but as elsewhere in Europe, Italian politicians are increasingly calling for reductions in immigration to alleviate social tensions. Italy's present labor minister belongs to an anti-immigrant party, the Northern League.

If Europeans won't have more babies or let in foreign workers, they can increase the percentage of their current population actually employed. European countries have raised retirement ages in the last few years, and will no doubt continue to do so. Italy is currently reforming its university system in order to get graduates out the door in three to five years, instead of the current average enrollment period of more than seven. And some see the solution in divvying the employment pie, as France did by imposing a maximum 35-hour work week in 2000. The Socialist government of Lionel Jospin claimed that this created a quarter of a million jobs in just one year, yet these jobs came at great cost to taxpayers, since employers' cooperation was purchased by reductions in their social security contributions.

In fact, no realistic plan for raising the employment rate can dispense with increasing labor flexibility. As Biagi put it in an article published a month before his death: "We must switch from a regulatory framework centered on the protection of individual jobs to the idea of protection on the market based on the concept of employability."

Much of the Italian center-left, which governed the country until last year, has accepted this. Temporary employment was finally legalized in 1997, and despite an onerous paperwork requirement for employers, the number of temps has grown vastly, doubling in the year 2000.

The center-left would have made other moves toward liberalization had it not lacked the political courage. Two years ago, before pressure from the hard left quickly forced him to backpedal, then-Prime Minister Massimo D'Alema joined his British counterpart Tony Blair in calling on the EU to promote greater flexibility in hiring and firing.

Britain is the model for all of Europe when it comes to labor flexibility. Thanks to reforms by the Thatcher government in the 1980s, its employment market is today the freest in the EU. According to the OECD, the standardized unemployment rate in the United Kingdom is 5.0 percent, compared to 8.4 percent in the 12 nations (including Germany, France and Italy) that share the euro currency.

In recent years other EU countries, notably including Spain and the Netherlands, have made hiring more flexible and have enjoyed reductions in unemployment. Yet the EU's two largest economies, Germany and France, remain hampered by tightly regulated labor markets from reducing their standardized unemployment rates, which are 8.1 percent and 9.1 percent respectively. Italy, whose standardized employment rate is 9.0 percent, must choose whether to follow the likes of Britain, Ireland and Spain in the direction of liberalized labor markets, or remain mired in regulation along with Germany and France.

A crucial step toward that decision came in May 2001, when Italian voters gave the center-right coalition led by Silvio Berlusconi one of the largest parliamentary majorities in the history of the Republic. Berlusconi, the nation's richest man with a fortune in television and other media, campaigned on a platform of pro-business policies including "lower taxes for all."

In partial fulfillment of those pledges the government last October published a "white paper" outlining its plans to liberalize the labor market. Written largely by Biagi, the document pleased employers as far as it went, though business advocates noted that the changes would be only a start.

The most controversial measures in the paper were the changes to Article 18. For a four-year, experimental period, the government would to extend the small-business exemption to any finn that increased its payroll to 15 workers or more, and to businesses of any size that emerged from the underground economy. Employers would also be free to upgrade temporary employees to regular-employee status without being bound by the law. In all these cases, employees unjustly fired would receive a cash settlement instead of reinstatement.

In the past, some labor leaders had recognized the need for flexibility on Article 18. Italy's second-largest union once even backed an exemption for businesses in the country's underdeveloped south, where unemployment is nearly four times as high as in the industrialized center and north (21 percent versus 5.7 percent). But after publication of the white paper, the unions disparaged the government's initiative as a "firing law." Last winter and spring they called a series of regional strikes to protest it.

The most vociferous denunciations came from Sergio Cofferati, head of the General Confederation of Italian Workers (CGIL), Italy's largest union with 5.5 million members. Once a Communist-party affiliate, CGIL is still the most left-wing of the major labor confederations.

Known as "the Chinaman" because of his narrow eyes, Cofferati is an intense man with a professorial demeanor that belies a keen instinct for mass politics. For years he's been a major influence on the parliamentary center-left. It was he more than anyone else who forced D'Alema to back down from joining Blair in the call for labor flexibility. As the political leaders of the opposition have moved toward more centrist, economically liberal positions, Cofferati has emerged as the major spokesman for the traditional left. He has repeatedly disavowed political ambitions, but national elections are still far off--barring an unforeseeable crisis, the Berlusconi government should last until 2006--and nobody is ruling out an eventual Cofferati candidacy.

So when the CGIL leader announced last February that his union would hold a general strike over Article 18, it was hard not to see the move in a political light. Italy's last day-long general strike had been twenty years earlier, but the precedent in most minds was a shorter version held in 1994, which helped bring down the first Berlusconi government after only nine months in power. If Cofferati was seeking to claim the leadership of the opposition, no achievement would stand him in better stead than to topple the left's great nemesis a second time.

Reinforcing the impression that Cofferati's move sprang from political self-interest was the fact that the other major unions resisted signing on to the general strike. More moderate labor leaders reaffirmed their commitment to saving Article 18, yet unlike Cofferati, they agreed to keep negotiating with the government over other matters, such as taxes, pensions and unemployment benefits. The government appeared to have struck a crucial strategic blow by dividing the major forces of organized labor.

This changed within a few days of a March 23rd demonstration that drew at least 700,000 (according to the police) and as many as 3 million (by CGIL's count) to Rome. One Berlusconi cabinet minister summed up the demonstration as a "trial of strength within the left-wing parties," a trial won by Cofferati and his anti-globalization allies over the more mainstream party leaders. Afterwards, all the other major unions signed on to the general strike. The opposition's leading politicians had already seen no choice but to grant their endorsements.

On Tuesday, April 16th, as many as 11 million workers stayed away from their jobs, shutting down banks and post offices, grounding commercial air traffic, stopping almost all trains, and reducing medical services to a minimum. In this second show of force, the unions proved their unity and their domination of the parliamentary opposition.

More importantly, the labor movement has made inroads among ordinary Italians and Berlusconi's popularity has suffered. From October to April, the government's approval rating fell from 38 percent to 32, and its negative rating rose from 37 to 48--a shift that pollster Renato Mannheimer has attributed to the government's position on Article 18. An Abacus survey taken a week after the general strike showed the country close to evenly split on the question: fifty percent backed labor's position on Article 18, and 45 percent blamed the government for the conflict.

Late May brought signs that the majority's resolve was weakening. First Economy Minister Giulio Tremonti suggested the possibility of leaving Article 18 in place while raising the exemption threshold to "a little bit" more than 15 employees. Then Berlusconi said he was willing to "postpone" or even revise his proposed reform, "in case of a general agreement" with the unions.

The government's commitment to liberalization has never been uncompromising. Although the prime minister himself is a champion of free-market capitalism, his coalition includes former members of the post-war Christian Democratic establishment, whose adherence to Catholic social teaching inclines them to conciliate organized labor.

Posing even greater potential for dissent on labor relations are Berlusconi's coalition partners on the so-called "social right" ideological heirs to the syndicalist strain in Fascism. It's easy to forget that Fascism was among other things a worker's movement, though newspapers provided an amusing reminder of this in April, when Milan's two airports renewed a Mussolini-era policy guaranteeing employees the right to pass their jobs on to their children.

Exponents of the social right, the most prominent of whom is minister of agriculture, are a minority within the post-Fascist National Alliance party. Yet the Alliance's leader Gianfranco Fini, deputy prime minister and Berlusconi's most likely successor, is always careful to speak of unions and their members with respect (something that cannot be said of the premier himself). It was Fini who handled the recent negotiations with public sector employees that ended with the government conceding a 5.6-percent pay hike. Of late, Berlusconi's most prominent ally in the struggle to liberalize labor markets has been a member of the center-left: Tony Blair. Last February the British and Italian prime ministers signed a letter, also endorsed by Spain's center-right Premier Jose Mafia Aznar, warning the EU against "excessive regulation of the labor market." "It's important for us to create more jobs and higher quality jobs for everyone," Blair explained on a visit to Rome.

Berlusconi has the EU establishment behind him in his effort to make hiring and firing easier in Italy. Last April the European Commission and the European Central Bank both called on Italy to liberalize its labor markets. This is perfectly consistent with the larger project of European integration, itself a subplot in the epic of globalization. Marco Biagi understood this clearly. The title of his last Il Sole article was: "Those Who Slow Reforms Are Against Europe."

But "Europe" is not always a tromp card in European politics these days, as Jean-Marie Le Pen's strong showing in the French presidential elections shows. The Italian conflict over Article 18 is just one indication that resistance to European integration, heretofore a specialty of the right, may become a feature of left-wing politics, too.

German Chancellor Gerhard Schroeder, a Social-Democrat, recently balked at an EC proposal to liberalize the European automobile market, and implied that EC criticisms of his nation's budget deficit were part of some continent-wide right-wing plot. The Socialist governments of France and the Netherlands have continued, in spite of EC objections, to give fuel-tax breaks to their nations' truck drivers.

The Italian government, as it happens, has adopted the same policy on fuel-tax breaks, which merely demonstrates that a nation's politicians will tend to favor the national interest over that of a supranational entity such as the EU. Berlusconi is not pushing for labor flexibility because Brussels told him to do so; he's just glad to have Brussels's backing when he can use it.

The EU could use Berlusconi's help, too. If the Italian government can pass a program of labor reform in a country whose Communist Party was the largest in the West, and where entrenched opposition to economic liberalism can be found even on the right, that will raise hopes for the Union's stated goal of making Europe the most competitive information-based economy in the world. If, however, Berlusconi fails, it could embolden unions and politicians of various ideological stripes for whom competitiveness is at best a low priority.

Mr. Rocca is a writer in Vicenza, Italy.