Italy chooses leaders to steer it through crisis

November 13, 2011 9:19 am


People celebrate after Italian PM Silvio Berlusconi resigned/AFP
ROME, Nov 13 – Italy starts forming a new government Sunday to steer it through a debt crisis that cost Silvio Berlusconi his premiership with fresh warnings the eurozone’s problems threaten the global economy.

Berlusconi quit to outbursts of joy on the streets of Rome Saturday after the Italian parliament gave the nod to a reform package aimed at staving off bankruptcy.

The prime minister, widely blamed for the country’s economic woes that panicked stock markets and shook the eurozone during the week, had made the approval by lawmakers a condition for his resignation.

The reforms include state asset sell-offs and a liberalisation of the labour market to boost competition.

US President Barack Obama said Saturday that despite positive developments in Italy and debt-ridden Greece, much remained to be done to assure markets that countries such as Italy would be able to finance their debts.

Athens has also put in place a new government to take charge of economic reforms required for a much-needed cash bailout.

“I think that we are not going to see massive growth out of Europe until the problem is resolved,” Obama said. “And that will have a dampening effect on the overall global economy.”

Chinese President Hu Jintao also warned that global economic recovery was “fraught with greater instability and uncertainty”.

Italian President Giorgio Napolitano will start Sunday to put together a team to manage the envisaged reforms, with economist and former European Union commissioner Mario Monti tipped to take over as interim premier.

Napolitano will hold talks with political parties from 0800 GMT before giving his mandate for the formation of a new cabinet that will have to move quickly to push through painful economic reforms.

The talks are expected to last until about 1700 GMT with investors pushing for a new government to be in place by Monday, in time for the opening of the markets, where Italy has been hit by a wave of panic.

Monti, 68, met European Central Bank president Mario Draghi, Italian media said.

The international community is pushing for Italy to form a transition government after Berlusconi’s resignation, and not to call early elections, in order to avoid market turmoil that could drag the eurozone even deeper into crisis.

Greece’s new prime minister Lucas Papademos meanwhile held urgent talks with his French and German counterparts Saturday on the next instalment of an international loan.

France’s Nicolas Sarkozy and Germany’s Angela Merkel underlined the need for Greece to implement promised economic reforms before new money is made available, said a French presidency statement.

“The payment of the next tranche (of the bailout) can only take place when a decisive step has been taken in this matter,” it said.

Greece’s new unity government faces a race against time to save the debt-stricken nation from bankruptcy after a historic power-sharing deal struck between opposing political parties.

Greek Finance Minister Evangelos Venizelos, who kept his job in the new government, has said he hoped the latest slice of the bailout for Greece would be paid soon after another EU finance ministers meeting on November 17.

First though, the Greeks have to implement the measures agreed at an EU summit in Brussels on October 26-27, which Venizelos said was “urgent” and would be done “no later than Monday or Tuesday”.

As part of the deal, private banks are to accept writedowns of 50 percent, which will allow Greece to wipe out nearly a third of its 350-billion-euro ($475 billion) debt.

The procedure to confirm the new Greek government — which was voted in with a comfortable 254 out of 300 cross-party votes — will begin in parliament Monday, with a vote of confidence expected Wednesday.

It will then have to force through painful austerity measures exacted as the price for a second EU rescue package of 100 billion euros in loans, the same amount in debt reduction and a further 30 billion in guarantees.

In Portugal, another European country that had received bailout money, civil servants and soldiers staged a protest in Lisbon Saturday against austerity measures aimed at putting the country’s finances in order.

A 2012 budget that received preliminary approval from lawmakers on Friday will scrap annual bonus payments for certain categories of civil servants and pensioners.

The working day will be increased by 30 minutes in the private sector, while health and education spending will be slashed.

An EU forecast this week said growth across the eurozone next year would collapse to 0.5 percent — a steep drop from its previous prediction of 1.8 percent.

Germany’s Der Spiegel magazine reported that Berlin has made contingency plans in the event that Greece has to quit the eurozone.

But the French presidency statement said Sarkozy and Merkel had “reaffirmed their determination to totally defend the euro”.


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