Markets dip as Monti works on Cabinet

1st job: Building faith in economy

ROME — Italy’s Prime Minister-designate Mario Monti held crucial meetings Tuesday with the leaders of the country’s biggest political parties as he worked to put together a Cabinet that can win parliamentary backing and steer the eurozone’s third-biggest economy through its debt crisis.

Both the center-left Democratic Party and ex-Prime Minister Silvio Berlusconi’s Peoples of Liberty party said they fully backed Mr. Monti.

But investors worried that they might pull their support in the future if austerity measures prove unpalatable, undermining the success of much-needed reforms.

That prospect weighed on Italy’s markets, with the yield on the 10-year bonds jumping again by 0.44 of a percentage point to 7.02 percent. Last week’s spike above 7 percent raised fears Italy eventually would need a bailout like Greece.

“Each time he will present a new measure, a new cut, a new reform, the same parties will have to continue giving him support,” said Andrea Mandel-Mantello, chairwoman of Advicorp investment bank.

Politicians can “unload” the responsibility of making tough decisions on Mr. Monti without fear of losing electoral ground, “but the markets will judge things as they happen,” Mr. Mandel-Mantello said.

Mr. Monti, a respected economist and former European commissioner, is under pressure to reassure markets quickly that Italy will avoid a default that could tear apart the coalition of 17 countries that use the euro and thus push the global economy back into recession.

Italy is considered too big for Europe to bail out, in contrast to Greece, Portugal and Ireland.

Mr. Monti met Tuesday morning with the head of the Democratic Party and Angelino Alfano, secretary of Mr. Berlusconi’s Peoples of Liberty Party.

Support from the parties’ lawmakers will be crucial in a confidence vote, likely this week, which would signal the start of Mr. Monti’s government.

“We think, in light of the facts and after this latest conversation, that professor Monti’s attempts are destined to turn out well,” Mr. Alfano told reporters after meeting with Mr. Monti.

The party previously had conditioned its future support on the shape of Mr. Monti’s Cabinet, his government agenda and the duration of his term.

Mr. Berlusconi’s allies want elections as soon as this spring, something rejected outright by Mr. Monti.

But Mr. Monti, a 68-year-old economics professor, made clear that he intends to serve until spring 2013 elections, calling it counterproductive to say when he would step down.

“If a date before [2013] is set, this haste would take away credibility from the government’s actions,” Mr. Monti said at his brief news conference. “I won’t accept” such a condition, he said.

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