There must be times when Elsa Fornero feels she has the world's worst job.

When the 63-year-old stepped out to buy a new pair of shoes last weekend, she was accompanied by no fewer than 10 police officers: six plainclothes bodyguards and another four to close off the pedestrian precinct in Turin where she went shopping. There are anti-mafia prosecutors who get less protection.

But then Fornero is Italy's welfare and employment minister, and the architect of labour reform laws that were approved by the cabinet on Friday. Among other things, it will now be easier for bosses to axe workers in an economic downturn.

The last full-scale attempt to free up Italy's labour market was 10 years ago. The man behind that reform was Marco Biagi who was shot dead by the self-styled New Red Brigades.

Three years earlier, the same group murdered Massimo D'Antona, another academic who was the adviser on employment law reform to the then centre-left government. Clearly, some people feel Fornero, an economics professor at the University of Turin, should meet the same fate: a demonstrator was photographed earlier this week outside parliament in Rome wearing a T-shirt with the slogan "Fornero for the cemetery".

The New Red Brigades, several of whose members had links with the most extreme wing of the trade union movement, have since been dismantled. But labour law reform remains Italy's hottest political potato.

A two-tier labour market divides virtually un-sackable, mainly older workers in indefinite employment from younger ones hired on an endless succession of short-term contracts that offer them almost nothing in the way of welfare benefits. The Fornero reform also includes measures to encourage bosses to give younger people apprenticeships, which guarantee modest welfare benefits and offer the chance of a long-term engagement.

The minister behind it has shown a rare - but seemingly unwished for - ability to attract attention. In December, she broke down in tears at a press conference as she announced an end to inflation-indexing for all but the lowest pension bands. The move was later reversed.

An overhaul of the employment laws was among the undertakings made to the EU institutions last year by Silvio Berlusconi's government in return for ECB intervention in support of Italy's then-beleaguered government bonds.

European gloom returns

Fears that recession-hit Italy will help drag the rest of the eurozone into a prolonged downturn have pushed stock markets lower with the FTSE 100 suffering its worst week this year. The German Dax slipped back below 7,000 after several days of falls, though remains well above the 5,800 it registered at the beginning of the year.

Crippling municipal debts in Portugal, a slowdown in Irish exports and a run on Spanish bonds that has sent Madrid's interest bill higher have all undermined the prospects of the currency zone after the second Greek bailout was agreed last month.

The Netherlands and Belgium have also suffered two quarters of contraction, pushing them into recession.

Analysts reported that many hedge funds, insurers and pension managers were beginning to lose faith in the ability of Mario Monti's government in Rome to push through reforms and the possible knock-on effects in Madrid and Lisbon running into serious funding problems.

"It was a very short party," said Gary Jenkins, director of Swordfish Research. "Spain is a big enough country and people are worried about a big knock-on effect. It's not a bad time to book a profit when things are as volatile as this."