ROME/PARIS, (Reuters) – Italy’s new government has announced far-reaching reforms in response to a European debt crisis that yesterday pushed borrowing costs for France and Spain sharply higher, and brought tens of thousands of Greeks onto the streets of Athens.
Italy’s new technocrat prime minister, Mario Monti, unveiled sweeping reforms to dig the country out of crisis and said Italians were confronting a “serious emergency”.
Monti, who enjoys 75 percent support according to opinion polls, comfortably won a vote of confidence in his new government in the Senate yesterday, by 281 votes to 25.
He faces another confidence vote in the Chamber of Deputies, the lower house, today, which he also expected to win comfortably.
“Only if we can avoid being seen as the weak link of Europe can we contribute to European reforms,” said Monti, who was sworn in on Wednesday as head of a government of experts after a rushed transition from the discredited Silvio Berlusconi.
In Athens, at least 50,000 Greeks joined a protest rally presenting the first public test for a new national unity government, also headed by an unelected figure, that must impose spending cuts and tax rises if Greece is to escape bankruptcy.
Police fired teargas at black-clad youths as protest marchers beat drums, waved red flags and shouted: “EU, IMF out!”
The Spanish government was forced to pay the highest borrowing costs since 1997 at a sale of 10-year bonds, with yields a steep 1.5 points above the average paid at similar tenders this year.
MAELSTROM
The euro fell in response. France fared a little better, but again had to pay markedly more to shift nearly 7 billion euros of government paper. Fears that the euro zone’s second largest economy is getting sucked into the debt maelstrom have taken the two-year-old crisis to a new level this week.
Asian shares fell for a fourth day in a row and the dollar firmed on Friday as Europe’s funding difficulties intensified.
In a sign global funding strains may spread to Asia, benchmark three-month euroyen interest rates futures fell to an eight-month low on concerns that tightness in dollar money markets may prompt non-Japanese banks to raise yen at a higher rate.
“The euro zone has got to deliver something which is going to calm markets down, and at the moment markets feel like they are being given no comfort whatsoever,” Marc Ostwald, strategist at Monument Securities, said.
In Rome, Monti outlined a raft of policies including pension and labour market reform, a crackdown on tax evasion and changes to the tax system in his maiden speech to parliament.
He later spoke to French President Nicolas Sarkozy and German Chancellor Angela Merkel, who all agreed on the need to accelerate reforms, the three leaders said in a joint statement.
With Italy’s borrowing costs now at unsustainable levels, Monti will have to work fast to calm financial markets, given that Italy needs to refinance some 200 billion euros ($273 billion) of bonds by the end of April.
Ireland, which has been bailed out and gained plaudits for its austerity drive, will also have to do more. Dublin will increase its top rate of sales tax by 2 percentage points in next month’s budget, documents obtained by Reuters showed.
ECB IN SPOTLIGHT
But no amount of austerity in Greece, Italy, Spain, Ireland and France is likely to convince the markets without some dramatic action in the shorter term, probably involving the European Central Bank.