ROME – Italy’s premier-designate Mario Monti began talks 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 1.9 trillion euros ($2.6 trillion) in debt would cause massive chaos in financial markets and shake the global economy.
Napolitano encouraged all sides to join forces to rescue Italy from its financial woes.
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 4.5 billion euros ($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.