Italy races to install Monti government

Mario Monti was handed the task on Sunday night of forming an emergency government led by technocrats as Italy’s head of state raced to win broad political consensus before financial markets opened on Monday.

Giorgio Napolitano, the 86-year-old president, who has been instrumental in guiding Italy through its political crisis, formally asked the unelected Mr Monti to take charge less than 24 hours after Silvio Berlusconi resigned as prime minister after parliament’s approval of some reforms demanded by the EU.

Mr Monti, a former European commissioner, and his as yet unnamed cabinet – expected to be dominated by technocrats all chosen from outside parliament – could be sworn in by Wednesday and could then seek a formal vote of confidence in both chambers.

Accepting the mandate, Mr Monti said Italy had to consolidate its finances and lift growth, but could overcome the crisis with common effort. “Italy must return to being always one of the elements of strength and not weakness of the European Union.”

Mr Napolitano said Italy could not afford elections at a time of market crisis, with €200bn of debt maturing by the end of next April. He said the duration of the government would depend on its actions as well as the reaction of markets and European institutions. Elections must be held by early 2013.

Mr Napolitano said he was confident Mr Monti’s administration would be in place by the end of the week.

Mr Berlusconi’s People of Liberty party on Sunday informed Mr Napolitano of its decision to support Mr Monti’s interim administration which had already secured the backing of centre-left and centrist opposition parties.

In a recorded video address, Mr Berlusconi said: “We are ready to support the head of state to give the country a government of high-profile technocrats.

“We must be united facing a crisis that was not born in Italy, not born out of our debt or our banks.”

In contrast to chaotic scenes on Saturday night when several thousand people hurled abuse and coins in disgust at Mr Berlusconi, the ex-prime minister emerged from his Rome residence on Sunday night to greet hundreds of his organised supporters calling for early elections.

Mr Berlusconi’s People of Liberty remains the largest force in parliament. On Sunday it made clear it wants to tie Mr Monti’s hands in implementing only the limited reforms that Mr Berlusconi pledged to the EU last month, and then make way for elections.

“Berlusconi is not taking up gardening,” remarked Angelino Alfano, party secretary, before heading to see Mr Napolitano.

Mr Berlusconi said in his video message: “Tomorrow I will redouble my efforts in parliament and institutions to renovate Italy …reforming its institutions, judiciary, tax system.”

In Brussels, European officials said they would keep up the pressure on Rome and Athens to implement long-demanded economic reforms, insisting that leaders of both main Greek political parties sign letters committing to austerity measures agreed last month, while inspectors will remain in Rome to monitor the Italian government’s progress on reforms.

“Big political changes are now sweeping through the eurozone, putting – at least for now – the many sceptical political observers to shame,” commented Erik Nielsen, chief economist at UniCredit, noting new governments in Italy and Greece and elections next Sunday in Spain. But he conceded that markets might not be convinced in the short term.

Panicking over the political paralysis in Rome, investors dumping Italian debt last week drove yields on its 10-year bonds to euro-era highs of 7.5 per cent, which if sustained would force Italy to seek an international bail-out or default on its €1,900bn public debt.

Angela Merkel, Germany’s chancellor who has kept in close contact with Mr Napolitano, welcomed the approval of a reform package by Italy’s parliament on Saturday. “I hope that confidence in Italy is restored, which is crucial for a return to calm throughout the eurozone,” she said ahead of a party conference in Leipzig.

Additional reporting by Peter Spiegel in Brussels