Mario Monti is facing political resistance in forming a Cabinet as Italian yields continue to surge and concern grows that the former European Union competition commissioner won’t be up to the task of tackling Italy’s sovereign debt crisis as its next prime minister.
Italian President Giorgio Napolitano asked Monti to head Italy’s so-called technical government on Sunday night, less than 24 hours after Prime Minister Silvio Berlusconi officially tendered his resignation so that his successor might be able to push through important budget cuts meant to restore confidence in the government’s ability to reduce the euro zone’s second-biggest debt load.
Monti began a final day of talks on forming his Cabinet today after struggling yesterday to get political parties to agree to take part. A government lacking political representation will find it difficult to muster support from parliament to pass unpopular laws like the austerity measures meant to reduce the nation’s 1.9 trillion euros of public debt, or roughly 120% of Italy’s gross domestic product, and secure further European Central Bank bond purchases.
“My commitment is aimed at making sure that politics can transform this difficult moment [into] a real opportunity for the nation,” Monti told a news conference in Rome yesterday. “The key thing is” to have the support of the parties, “without which I wouldn’t even take on this task, regardless of the physical presence” of politicians in the Cabinet, he said.
As Italian premier, Monti, an economist and former adviser to Goldman Sachs, will seek to reassure investors that Italy can cut its debt load and spur economic growth that has lagged behind the euro-zone average for more than a decade. As support for Monti’s Berlusconi-free government mounted last week, 10-year bond yields narrowed more than 100 basis points, but have since reversed on concern that Monti’s appointment might not be the silver bullet that many expected it to be.
Monti holds talks today with leaders of the Democratic Party and representatives of Berlusconi’s People of Liberty party after consultations with smaller groups on Monday. After the consultations yesterday, Democratic Party leader Pier Luigi Bersani confirmed his party’s support for a Monti government and said that it should have “a strong technical character.”
Antonio Di Pietro, head of the Italian Values party, told reporters that, after speaking with Monti, he was “unsure” whether the soon-to-be premier would agree to form a new government, while the People of Liberty party said it will back Monti’s government, but doesn’t want to go beyond implementing the austerity measures already drawn up to balance the budget in 2013.
The EU has signaled it wants Italy to hasten measures to spur growth and trim the public debt. That means implementing measures already passed — which include raising the retirement age, opening up closed professions, and selling real-estate assets — as well as taking additional action to shore up finances and instil confidence. EU and ECB inspectors arrived in Italy last week in order to oversee reforms and review progress. Before his resignation, Berlusconi also invited the International Monetary Fund to monitor Italian finances.
“An attempt to restrict the government to implementing the economic commitments promised to the EU and IMF, or placing a strict time limit on its duration in office, would curtail any possibility of a strong government,” said Eoin Ryan, an analyst at IHS Global Insight in London. “The markets are expecting a bigger response than this.”
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Monti has said he will focus on fixing public finances and boosting economic growth. Confidence votes will be held by both houses of parliament in order to confirm the new government, which should be in place before November 18, according to Chamber Speaker Gianfranco Fini.