Italy unveils broad reforms, France, Spain squeezed

Mario Monti

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.

Mario Monti

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.