Former European Union Commissioner Mario Monti will lead an unelected government and serve as finance minister in a bid to prevent the euro area’s third- biggest economy from succumbing to the debt crisis.
Monti, 68, told President Giorgio Napolitano he accepted the post, announcing a Cabinet that included Corrado Passera, chief executive officer of Intesa Sanpaolo SpA, as industry minister and Antonio Catricala, the current head of the antitrust regulator, as deputy prime minister. The new government will be sworn in today at 5 p.m. Monti will present his program to the Senate in Rome tomorrow at 1 p.m.
“We have received a lot of encouragement from our European partners and international authorities,” Monti said at a press conference at the Quirinale Palace. “I hope this translates into a calming of the markets, especially regarding the tensions facing our country.”
Italian bond yields remain above the 7 percent threshold that led Greece, Portugal and Ireland to seek bailouts, piling pressure on Monti to quickly spell out how he plans to cut the world’s fourth-biggest debt. His task will be complicated by the refusal of the main parties to accept Cabinet positions, leaving Monti’s team of “technocrats” with no political base in parliament to pass legislation.
His swearing in will end a tumultuous week that saw Silvio Berlusconi’s majority evaporate on Nov. 8, prompting his offer to resign once the legislature passed economic-growth legislation pledged to the European Union. After both houses endorsed the plan, Berlusconi stepped down on Nov. 12. Napolitano then held talks with all parties before reaching outside the political arena to ask Monti to form a government.
In two days of talks, Monti failed to persuade the biggest parties to take Cabinet posts, leaving them free to oppose his policies.
Democratic Party leader Pier Luigi Bersani said he supported a government with “a strong technical character.” Angelino Alfano, head of Berlusconi’s People of Liberty party, said implementing austerity measures “represents the cornerstone” of their support for Monti. The incoming premier downplayed the rebuff.
“The lack of presence of political personalities in the government will help rather than obstruct the action of the government because it will remove any possible embarrassment,” he said.
Italian bonds gained, with the 10-year yield declining 6 basis points to 7.01 percent at 3 p.m. in Rome. That cut the difference with German bunds by 11 basis points to 518 basis points, sill more than twice the average for the past year.
With a debt of 1.9 trillion euros, more than Spain, Greece, Portugal and Ireland combined, the jump in bond yields is already raising borrowing costs in a country that faces 200 billion euros of bond redemptions in 2012. The Treasury had to offer a yield of 6.29 percent, the highest since 1997, on five- year bonds at an auction on Nov. 14.
Italy “needs to deliver harsh measures in terms of debt reduction,” said Alessandro Giansanti, a senior interest-rate strategist at ING Groep NV in Amsterdam. “It will be a difficult problem for him because he has no majority in parliament, and the cabinet will be made up of technocratic people. It’s not going to be an easy life for him.”
Mustering political backing may be vital to Monti’s success should Italians turn against austerity. The government may be forced to sell assets, introduce property and wealth taxes and cut spending on health care, pensions and education, said Nicola Marinelli, who oversees $153 million at Glendevon King Asset Management in London.
“When all this is clear to the wider public, I think that the public backlash would be such that the parties that are backing him today, in a lukewarm and forced way, will change course quicker than Lady Gaga changes dresses,” Marinelli said.
Monti included unions and employers in his talks and he said they understood that sacrifices would be necessary.
Italy’s deficit, at 4.6 percent of gross domestic product last year, is about the same as Germany’s, lower than that of France and less than half the U.K.’s, at 10.3 percent.
The country, which has a primary surplus, could send the debt on a declining trajectory starting next year. Still, anemic economic growth and the Berlusconi’s government struggle to shore up public finances led investors to bet against Italy.
Monti, an economist who is president of Bocconi University in Milan, the country’s top business school, also needs to persuade the European Central Bank to continue to backstop the country’s debt.
The ECB began buying Italian debt on Aug. 8 after the nation unveiled 45.5 billion euros in austerity measures, though the effort hasn’t been sufficient to stem borrowing costs. The ECB bought almost half as many bonds last week as it did in the previous week.
The EU has signaled it wants additional action by Italy to spur growth and trim debt as well as hasten implementation of measures it has already passed. They include increasing the retirement age, opening up closed professions and selling real- estate assets. EU and ECB inspectors arrived in Italy last week and Berlusconi also agreed to have Italy’s finances monitored by the International Monetary Fund.
© Copyright 2016 Bloomberg News. All rights reserved.