Under attack Berlusconi pledges reform

ITALIAN Prime Minister Silvio Berlusconi repeated promises of economic reform as Italian bonds came under renewed attack in the eurozone crisis and the centre-left opposition asked the president to name a new government.

With markets reeling from an unexpected decision by Greek Prime Minister George Papandreou to hold a referendum over austerity measures demanded by the European Union, Italian bonds were hit by a new wave of selling.

Yields on Italy’s 10-year BTP bonds rose to 6.3%, an unsustainable level just short of the point they reached in August when the ECB propped up the market by buying Italian debt.

“If 10-year yields get to 7%, it becomes increasingly difficult for a country to sustain its debt,” said Pavan Wadhwa, global head of interest rate strategy at JP Morgan in London.

“Italy is now 50 to 75 basis points away from those levels and our view is that the ECB will be forced to pick up the pace of its bond purchases to avoid Italy being shut out of funding markets.”

Berlusconi said he would outline reforms promised to Italy’s EU partners at tomorrow’s G20 meeting and promised the programme would be implemented with the “determination, rigour and speed which the situation demands”.

However, Italy’s main opposition party repeated calls for the 75-year-old premier to resign, saying it had asked President Giorgio Napolitano to appoint a new government immediately.

“We are pointing to the necessity — which has now become urgent, a matter of minutes — for a political change to face the storm,” Enrico Letta, one of the Democratic Party’s senior leadership team, said. “Italy is unprepared to deal with the crisis.”

Too big to bail out if its borrowing costs get out of control, Italy’s mix of sluggish growth and a mountainous public debt equivalent to 120% of gross domestic product poses a threat to the survival of the single currency.

Berlusconi, mired in scandal and struggling to contain divisions in his centre-right coalition, has promised new reforms such as easier rules on redundancies, including for civil servants, and an increase in the pension age.

There has been wide- spread scepticism about the scope and timing of the measures but Berlusconi has resisted calls from the opposition, unions, business leaders and the Catholic Church to resign.

The opposition is not willing to wait for spring elections and wants Napolitano to appoint an interim national unity government, led by a respected outside figure like former EU commissioner Mario Monti.