Monti seeks to calm market concerns over Italy

By FRANCES D'EMILIONICOLE WINFIELD

ROME (AP) — Seeking to calm financial markets, Premier Mario Monti said Monday that he will lead Italy until the next government takes power, insisting there will be "no decision-making vacuum" despite his intention to resign ahead of time.

What happens after the election, however, kept markets on edge, sending stocks and bonds plunging.

Monti announced Saturday he is resigning early because Silvio Berlusconi's party, Parliament's largest, yanked its support for his economic policies. The same day, Berlusconi said he was running to get the premiership back, despite his party's lagging in the opinion polls.

Italian markets slumped Monday as investors feared a new era of political instability. Some worry that a return to party politics under an elected government could threaten the reforms that Monti has been pushing through to restore confidence in the country's financial future.

From Oslo, Norway, where he was attending the Nobel Peace Prize award to the EU, Monti said Monday that the financial market drops in Italy "shouldn't be dramatized." He also sought to reassure those worries about what the elections will yield, following the end of his technocrat government.

He said he was "fully confident" that the next government will be "highly responsible" and "in line" with policies needed for the good of Italy's ecnonomy and the European Union in a wider context.

An economist appointed last year to save Italy from succumbing to the eurozone debt crisis, Monti has said he will step down as soon as Parliament passes the 2013 budget law later this month.

His term was due to end by April, and his resignation would move up elections by about two months.

Led by plunging bank shares, the main stock index, the FTSE MIB, closed 2.2 percent lower. The interest rate on the government's 10-year bond — an indicator of how risky investors consider a country's ability to pay down its debt — rose 0.28 percentage points to 4.75 percent.

"The markets must not fear a decision-making vacuum," Monti said. "The government is in charge in all its powers, and will be in charge for ordinary administration even after the (Parliamentary) chambers are dissolved and will be in charge until the passing of powers to the new government."

Asked if he would run in early elections that could be held as soon as February, Monti indicated he didn't want any electoral campaign to distract him from his nonelected government's task of rescuing Italy from the debt crisis.

"I am not considering this question in this phase. All my efforts are now concentrating on completing the remaining time for this government. It seems to be that the time is limited enough to require intense application of mind and energy," Monti said.

Explaining his decision to leave before his term was up, Monti said it was impossible to continue after Berlusconi's forces withdrew support for his economic policies. His government was endorsed by the two largest political parties, including Berlusconi's.

In ending his support for Monti's measures, Berlusconi contended that the government's recipe for severe austerity is doing nothing to lift Italy of recession.

Without Monti in the race, the strongest candidate in opinion polls as been center-left leader Pier Luigi Bersani. Although Bersani staunchly backs the Monti government, left-wing lawmakers have been wary about labor market reform plans.

Berlusconi has been taking a populist line, saying he would abolish a property tax that Monti imposed to bring in badly needed revenue. Monti warned against the "risk of a populist drift in economic politices."

But he professed confidence in the voters, who in polls have said they like Monti. "The Italian citizens are mature, they aren't fools," he told the news conference.

Despite the premier's efforts to calm markets and fellow European leaders, Monti's decision to resign soon "has clearly been met with anxiety in the markets, with Monti's government seen as imperative to Italy's stability," Craig Erlam, market analyst for London-based Alpari, said in a note.

Monti was tapped by Italy's president to lead the country in late November 2011 after Berlusconi resigned, having lost the confidence of international markets in his ability to save the country from a Greek-style debt crisis. Monti, a respected economist and former European Union commissioner, won back a degree of international credibility for the country through a series of tax hikes and fiscal reforms that were deeply unpopular at home.

Leaders of small, centrist parties in Italy have been wooing Monti to come onto their ticket. Before Monday, Monti had ruled out running for office but indicated he might accept some role in government if asked.

European leaders, who collectively sighed in relief when Monti was appointed, did not hide their concern over news that he was leaving prematurely and that Berlusconi, with his personal scandals and legal woes, was back in the political fray.

"Italy has two-thirds of the route of reform behind it, but the final third is now decisive and so a halt to the policy of reform would entail not just a significant weakening of Italy, but also could bring new turbulence to Europe," German Foreign Minister Guido Westerwelle told reporters in Brussels. "So my appeal to all of those in positions of responsibility in Italy is to be aware of their responsibility not just for Italy but for all of Europe."

Analysts had predicted a market selloff Monday, even though Berlusconi's conservatives trail in the polls and Italy's center-left Democratic Party, which is expected to win February elections, has pledged to continue with Monti's reforms.

Outside of Italy, European financial markets eked out small gains at the end of the day, as some investors reassessed their concerns over Italy and focused instead on improvements in U.S. budget talks.

The rise in the interest rates on Italy's 10-year bonds reverses some of the improvements made in recent weeks. The rate had dropped from nearly 6.4 percent in July to 4.37 percent two weeks ago. That drop was mainly due to the offer from the European Central Bank to buy unlimited amounts of a country's short-term debt, lowering their borrowing rates, if they apply for an aid program.

Luca Ricolfi, a columnist for La Stampa, had criticized Monti for concentrating too much on reducing the budget deficit through tax increases. Still, he said, "I don't know if Monti has saved Italy but I am certain that without him we would be worse off today than we are."

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Geir Moulson in Berlin and Frances D'Emilio in Rome contributed.

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Follow Nicole Winfield at www.twitter.com/nwinfield

2012-12-10 18:22:38 GMT