ROME — Italy’s Premier-designate Mario Monti says it is “premature” to say if the country will require more tough measures to rescue its finances and revive its economy, as he sought enough backing from political parties to form a government.
Two days after Silvio Berlusconi resigned as premier, and with investors still nervous about Italy’s credibility, Monti spent Monday consulting with political parties, then said he can’t say when he would have a Cabinet lined up.
Pressured by financial markets, Italy’s Parliament last week gave final approval after weeks of political squabbling over emergency measures aimed at cutting spending and spurring economic growth, but it is unclear if that action is enough with Italy’s debt costs shooting upward.
Asked if Italy would need a “corrective” package of measures, Monti replied: “I appreciate the question, but it would be premature on my part to reply.”
A few party leaders — including ones in Berlusconi’s party — have been demanding the nonpartisan Monti only last long enough to implement economic reforms, then step down so elections can be called this spring, a year ahead of schedule.
But 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’d step down.
“If a date before (2013) is set, this haste would take away credibility from the government’s actions,” Monti said at his brief news conference. “I won’t accept” such a condition, he said.
Investors initially cheered Monti’s appointment, 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.
Italy’s government raised $4.1 billion in a sale of five-year bonds on Monday, but the 6.29 per cent interest rate was the highest since 1997. Italy paid a much lower rate of 5.32 per cent at a similar auction last month. The increase is a sign that banks and other bond buyers remain concerned about Italy’s ability to pay its debts.
Italy will need those borrowing rates to come down in the coming months to avoid a big increase in its interest costs — some C200 billion ($273 billion) in public debt comes due through the end of April.
Tuesday is shaping up as a crucial day for Monti to decide if he can count on Parliament’s support. He is to meet in the morning with Italy’s two largest parties in the legislature — those of Berlusconi’s conservatives and a centre-left party made up of former communists and ex-Christian Democrats. Their votes would be crucial in a confidence vote, likely to come later this week, which would seal the start of Monti’s government.
In an indication of just how deeply split the ranks of Berlusconi’s conservatives are, one of its most prominent leaders, Foreign Minister Franco Frattini, used a state TV interview to urge his party to rally behind Monti “with conviction and force” because “we can’t run the risk that this government won’t succeed.”
Monti — an economist — was asked by Italy’s president on Sunday night to create a government of experts capable of overhauling an ailing economy and keeping market fears over the country from threatening the existence of the euro.
But besides the clamour from some parties for elections soon, some have been insisting that political figures are given roles in his Cabinet. That could undo the “technocratic” character many analysts expected he would bring to his government.
Monti told reporters he would take the time needed to line up a strong team, and said he hopes the markets will “temper their impatience” by his need to choose well.
Monti’s government would need to implement economic reforms aimed at reviving stagnant growth to bring down public debt, stuck near 120 per cent of GDP.
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 C1.9 trillion ($2.6 trillion) in debt would cause massive chaos in financial markets and shake the global economy.
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 C4.5 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.
Analysts say Berlusconi’s exit from the premier’s office — although he still serves in Parliament — and Monti’s new government will only be the start of a long process of change in Italy.
“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.
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Barry reported from Milan. Victor L. Simpson contributed from Rome.