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Italy’s new premier Monti rushes to build new government
Question of the Day
ROME — Italy’s premier-designate Mario Monti began talks on Monday to create a new government of non-political experts tasked with overhauling an ailing economy and keeping market fears over the country from threatening the existence of the euro.
Investors initially cheered Monti’s appointment, following quickly on Silvio Berlusconi’s weekend resignation, though concern lingered about the sheer amount of work his new government will have to do to restore faith in the country’s battered economy and finances.
President Giorgio Napolitano tapped Monti on Sunday to create a government capable of implementing economic reforms aimed at reviving stagnant growth to bring down public debt, stuck near 120 percent of GDP.
Monti pledged to act “with a sense of urgency” to identify ministers in the new government but said he would also take the time necessary to secure a strong team. He was meeting various political parties throughout the day ahead of a confidence vote in Parliament later this week, possibly by Friday.
Some parties were looking to extract concessions in exchange for support to Monti’s government.
That risks slowing the process of forming a government, after days in which Italy’s political machinery — under pressure from markets — had moved with rare efficiency. Both houses passed fresh austerity and reform measures within two days, paving the way for Berlusconi’s resignation.
Improving market confidence in Italy is crucial to the future of the eurozone as the country would be too expensive to rescue. A default on its euro1.9 trillion ($2.6 trillion) in debt would cause massive chaos in financial markets and shake the global economy.
It is time to “unleash a collective effort which, unfortunately, has been lacking lately,” he said in a speech, appealing for “maximum cohesion” so the country can rebound.
The pressure for Italy to reform its economy is huge as it has become clear that the European Central Bank is not shielding it from the bond market turmoil.
The central bank almost halved its purchases of government bonds last week to euro4.5 billion ($6.2 billion), effectively allowing investors to run Italy’s bond yields higher. The purchases are aimed at keeping a lid on borrowing rates for Italy and other eurozone countries so they won’t get frozen out of financial markets, as has happened to Greece.
But the ECB is reluctant to protect governments from the market pressure, saying it is up to governments to convince investors of their economies’ worth.
That pressure no doubt helped accelerate the power shift in Rome, as it did in Greece, where a new government of technocrats also took over last week. The hope is that administrations of experts not affiliated to parties will be more willing to make the tough but necessary decisions that politicians have so far balked at.
But the fact that it will take time to shape up the battered economies of Italy and Greece kept investors on edge.
On Monday, the yield on Italy’s benchmark 10-year bonds fell as low as 6.28 percent in early trading but soon rose again to 6.70 percent — still uncomfortably high and not far from the 7 percent threshold that has pushed other eurozone countries to seek bailouts.
The longer these borrowing rates stay high, the more difficult it will be for Italy to reduce its huge debt pile.
That was apparent in a bond auction on Monday, when Italy raised euro3 billion ($4.1 billion) in the sale of five-year bonds at an interest rate of 6.29 percent, the highest level since 1997 and up from 5.32 percent at a similar auction a month ago.
Italy will need those borrowing rates to come down in coming months to avoid a big increase in its interest costs — some euro200 billion ($273 billion) in public debt comes due through the end of April.
“It will take years of unprecedentedly tight fiscal policy to get the public finances on a stable footing,” said Ben May, economist at Capital Economics.
Monti, a 68-year-old economics professor proved his mettle as European competition commissioner in the 1990s, has the support of investors and the EU, but several Italian parties were still attaching strings to their endorsement.
Berlusconi’s party — the largest in Parliament — demanded that his government last only as long enough as it takes to heal Italy’s finances and revive the economy. Berlusconi himself has pledged to continue playing a key role in Italian politics.
Antonio Di Pietro promised that his small Italy of Values party, which has been in the opposition to Berlusconi, “won’t block the birth of a Monti government.” But he made clear a commitment to make electoral reform a priority of the next government would weigh heavily when deciding whether to back Monti in the confidence vote.
He is also pushing for early elections once the electoral system is changed.
Some lawmakers, meanwhile, have been lobbying for representatives of all major parties to be part of the government, rather than having a Cabinet of technocrats.
Monti appeared to have the respect of many Italians, eager to see an end to the financial crisis that threatens their own well-being.
“In my opinion he will be better than what we had before, obviously. He seems to me to be a person who is serious, normal and with experience,” said Bernardo Albrigo, in the Campo Dei Fiori open-air market in central Rome.
• Barry reported from Milan.
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