Former European Commissioner Mario Monti formed a new technocratic government in Italyon Wednesday to face a major debt crisis threatening the entire euro zone.Officials said the new government, announced by Monti at the presidential palace in Rome, would be sworn in at 5 p.m. (11 a.m. EST).The government has the urgent task of tackling a crisis that has pushed Italy's borrowing costs to untenable levels and brought it to the brink of economic disaster.
Speaking after presenting his cabinet, Monti said he hoped international markets would be placated by the installation of the new government and that it would need to convince the Italian public and parliament about what are expected to be painful austerity policies. Monti, a respected economics professor, said he would himself take the crucial economy portfolio in his new government. Corrado Passera, the CEO of Italy's biggest retail bank Intesa Sanpaolo, was given the infrastructure and industry portfolio.
But after disputes among the parties which complicated Monti's task, the new government contained no politicians as he was reported to have wanted. Some analysts say lack of politicians in the administration could make it more vulnerable to ambushes in parliament as it pushes through unpopular measures. But Monti said the lack of politicians would strengthen rather than weaken the government by enabling it to avoid political disputes and push ahead with vital reforms. "The absence of political personalities in the government will help rather than hinder a solid base of support for the government in parliament and in the political parties because it will remove one ground for disagreement."
He said he would present his austerity program, to the Senate on Thursday. This is expected to be followed by a confidence vote in both houses of parliament. The reforms were demanded by European leaders to stem a crisis at the center of the euro zone's problems. The new administration was formed in less than three days in a scramble to face the crisis piloted by President Giorgio Napolitano after market confidence in Italy collapsed.
It is expected to have an overwhelming majority in both houses, based on wide external support promised by most of the political parties except the devolutionist Northern League, a partner in Berlusconi's outgoing government.
The process is being closely watched by markets still nervous about Italy's ability to break out of a crisis centered on its huge public debt and painfully slow growth, despite the resignation on Saturday of Silvio Berlusconi, whose failure to pass crucial reforms precipitated a collapse of confidence.
Underlining how much is at stake, yields on Italy's 10-year bonds went through 7 percent again on Wednesday, the level at which Greece and Ireland were forced into bailouts.Euro zone defenses are not big enough to fund a similar operation for Italy, the zone's third largest economy, which is why it is crucial to the outcome of the current debt crisis. The government announcement had no immediate effect on yields.
Crucial to Monti's success was the backing of the PDL party of outgoing prime minister Berlusconi, who was forced to step down on Saturday by the fast-worsening crisis. Napolitano, who has engineered the extremely rapid government transition in response to the collapse of confidence in Italy, nominated Monti for the premiership on Sunday night. The president has called for an extraordinary national effort to win back the confidence of markets, noting that Italy has to refinance about 200 billion euros ($273 billion) of bonds by the end of April.
Monti has said his government should last until the next scheduled elections in 2013, despite widespread expectation that politicians intend to give him only enough time to implement reforms before precipitating early polls. "I hope that this government of technocrats succeeds in addressing all the requests made by the European Central Bank in its letter," outgoing Industry Minister Paolo Romani, from Berlusconi's PDL party, told the Corriere della Sera newspaper. "But let it be clear that as soon as that is done, we expect Monti to give the people the chance to choose a government."
(Writing byBarry Moody; additional reporting by Giuseppe Fonte, Deepa Babington and Gavin Jones)