New Italian premier meets parties as markets sour

Both the center-left Democratic Party and ex-Premier Silvio Berlusconi's Peoples of Liberty party said they fully backed premier-designate Mario Monti. But investors worried that they might pull their support in the future if austerity measures proved unpalatable, undermining the success of much-needed reforms.

That prospect weighed on Italy's markets, with the yield on the 10-year bonds jumping again by 0.44 of a percentage point to 7.02 per cent. Last week's spike above 7 per cent raised fears Italy would eventually need a bailout like Greece.

"Each time he will present a new measure, a new cut, a new reform, the same parties will have to continue giving him support," said Andrea Mandel-Mantello, the chairman of Advicorp investment bank. Politicians can "unload" the responsibility of making tough decisions on Monti without fear of losing electoral ground, "but the markets will judge things as they happen."

Monti, a respected economist and former European commissioner, is under pressure to quickly reassure markets that Italy will avoid a default that could tear apart the coalition of 17 countries that use the euro and push the global economy back into recession.

Italy is considered too big for Europe to bail out, in contrast to Greece, Portugal and Ireland.
Monti met this morning with the head of the Democratic Party and Angelino Alfano, secretary of Berlusconi's Peoples of Liberty party. Support from the parties' lawmakers will be crucial in a confidence vote, likely this week, which would signal the start of Monti's government.

"We think in light of the facts and after this latest conversation that Professor Monti's attempts are destined to turn out well," Alfano told reporters after meeting with Monti.

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