Italy must speed reform for ECB to buy bonds-sources

PARIS Aug 5 (Reuters) - The European Central Bank is demanding that Italian Prime Minister Silvio Berlusconi commit to fast-track specific welfare reforms and a constitutional amendment enshrining a fiscal rule before it will buy Italian bonds, sources close to the matter said on Friday.

The sources, speaking on condition of anonymity because of the sensitivity of the issue, said the ECB had agreed in principle on Thursday to buy Italian and Spanish bonds if key structural reforms were brought forward.

Berlusconi's office said he and Economy Minister Giulio Tremonti will hold a news conference at 1700 GMT, although it was not clear whether he will make an announcement along those lines.

One source said he was not aware of any specific demand on Spain, but Madrid was also expected to commit to speeding up structural reforms.

Top European Union leaders were applying concerted pressure on Berlusconi to make an announcement by the end of the weekend so that the ECB could intervene in bond markets early next week, the sources said.

"The ECB has already signalled their will to act. People in the market say the ECB has started inquiring about Italian bond prices, but it hasn't bought any," one source said.

He said the ECB did not negotiate directly with governments, but the European Commission and European Council President Herman Van Rompuy were talking to the Italian and Spanish governments, and the French and German leaders were applying vital political pressure.

An Italian government source said earlier that Berlusconi spoke by telephone on Friday to his Spanish counterpart Jose Luis Zapatero and Van Rompuy to discuss market turmoil.

Four of the 23 ECB's Governing Council opposed the reviving of its bond-buying programme which has so far only bought Portuguese and Irish paper over the past two days. [ID:nLDE7740IF] (Reporting by Paul Taylor, editing by Mike Peacock)