ROME/ATHENS, Nov 12 (Reuters) - Italy's parliament was set to approve austerity measures today, triggering the formation of an emergency government to replace that of Prime Minister Silvio Berlusconi, and meeting European Union demands to avert a euro zone meltdown.
After months of dither and delay, Rome appears to have got the message as bond markets pushed it to the brink of needing a bailout that the euro zone cannot afford.
President Giorgio Napolitano and Italian lawmakers have put the process on a fast track: the Chamber of Deputies was due to start debating at 1130 GMT and final approval of the cuts by the lower house marks the Berlusconi government's final act.
Berlusconi was expected to hold a last cabinet meeting and then hand his resignation to Napolitano at the Quirinale Palace.
A largely technocratic government headed by former European Commissioner Mario Monti was seen in place by Sunday night or Monday morning.
In Athens on Friday, former European Central Bank policymaker Lucas Papademos, a technocrat like Monti, was sworn in to lead a new government tasked with meeting the terms of a bailout, after days of political angling.
In Tokyo, International Monetary Fund chief Christine Lagarde warned that if strains in Europe worsen, Asia would be negatively affected through trade and financial sector links.
At a news conference after meeting Japan's Finance Minister Jun Azumi, she said: “...we touched on the economic situation in the euro zone, the way to address it, and the consequences that the euro zone crisis has and would have if it deteriorated further in the rest of the world, particularly in Asia.”
“I insisted with Minister Azumi that no country can be immune under the present circumstances, no matter how developed or how emerging or how far away it is. The countries are totally interconnected. That is what we see at IMF,” she said.
Her warning came after pressure from Washington for faster action from the currency bloc.
“The crisis in Europe remains the central challenge to global growth. It is crucial that Europe move quickly to put in place a strong plan to restore financial stability,” U.S. Treasury Secretary Timothy Geithner said on Friday.
U.S. President Barack Obama spoke separately with German Chancellor Angela Merkel and French President Nicolas Sarkozy about the crisis late on Thursday.
The euro made its strongest gains against the dollar in two weeks on Friday and Italian bond yields, which had raced above sustainable levels this week, fell in relief at the prospect of a new government.
European shares also rose, with Italian banks including Intesa Sanpaolo rallying.
But some investors doubted the recovery would last, as even a technocrat government might struggle for progress on fiscal reforms Italy has long promised but never delivered.
“We can have maybe two or three days of calm -- in inverted commas -- but nothing has really changed underneath,” one bond trader said.
Spain, the euro zone's fourth largest economy and due to hold elections in nine days, stopped growing in the third quarter, putting its deficit-reduction goals in doubt.
With European leaders dithering over how to tackle the deepening crisis, pressure has mounted on the European Central Bank to act more forcefully by becoming a full lender of last resort like the U.S. Federal Reserve and the Bank of England.
“There is real turbulence in the markets, real question marks over whether countries can deal with their debts and a big question mark over the future of the euro zone,” British Prime Minister David Cameron said.
Russia's Prime Minister Vladimir Putin expressed doubts Europe had the firepower to avoid the “catastrophe” of an Italian collapse. Russian experts “believe that without direct intervention from the ECB this problem cannot be solved”, he said.
On the same day that the head of the 440-billion-euro ($600-billion) European Financial Stability Facility (EFSF) was quoted as saying market turmoil had made it more difficult to boost the bailout fund, Putin said the EU, which accounts for half his country's trade, badly needed more emergency funding.
“The EFSF, alone or cooperating with the IMF, does not have the necessary resources. I believe that the resources needed to overcome the crisis are about 1.5 trillion euros,” said Putin. |
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