UPDATE 4-Italy gets new technocrat government

Wed Nov 16, 2011 11:51am EST

* Monti names technocrat cabinet

* Takes economy portfolio himself

* Government to face confidence votes this week

* Relief across Europe but no impact on yields

By James Mackenzie and Barry Moody

ROME, Nov 16 (Reuters) - Mario Monti formed a new technocrat government in Italy on Wednesday to tackle a major debt crisis threatening the entire euro zone and said he hoped it would placate financial markets.

President Giorgio Napolitano swore in a 16-member government, including three women, at his palace on Wednesday afternoon, ending a chaotic political crisis that has placed Italy at the centre of the euro zone's burgeoning problems.

The government now has the urgent task of tackling a broader crisis that has pushed Italy's borrowing costs to untenable levels and brought it to the brink of economic disaster.

Speaking after presenting his cabinet to the president earlier, Monti said: "We feel sure of what we have done and we have received many signals of encouragement from our European partners and the international world.

"All this will, I trust, translate into a calming of that part of the market difficulty which concerns our country."

The appointment of the widely respected former European Commissioner to replace flamboyant media magnate Silvio Berlusconi has brought relief in euro zone capitals.

Germany Chancellor Angela Merkel values Monti very highly, her spokesman said in Berlin, adding that she was ready to meet him. Many world leaders in contrast tried to keep clear of Berlusconi, notorious for off-colour humour and diplomatic gaffes.

Monti, a respected economics professor and former European commissioner, said he would take the crucial economy portfolio himself.

Corrado Passera, chief executive of Italy's biggest retail bank Intesa Sanpaolo, was given the infrastructure and industry portfolio.

DISPUTES

After disputes among political parties which complicated Monti's task, the new government contained no politicians, as he was reported in the media to have wanted. Some analysts say this could make it more vulnerable to ambushes in parliament as it pushes through unpopular measures.

But Monti said it would strengthen the government by enabling it to avoid political disputes and press ahead with vital reforms.

"The absence of political personalities in the government will help rather than hinder a solid base of support for the government in parliament and in the political parties because it will remove one ground for disagreement."

He said he would present an austerity programme to the upper house, the Senate, on Thursday. This is expected to be followed by a confidence vote in both houses of parliament.

The reforms were demanded by European leaders to stem a crisis at the centre of the euro zone's problems.

Commentators generally welcomed the ministerial line-up and Monti's decision to take the economy portfolio. "He obviously wants to be in control of what is clearly the most critical area," said Riccardo Barbieri, chief European economist at Mizuho bank.

Monti said the government's success depended on explaining what are expected to be tough austerity measures to the public.

The new government was formed in less than three days in a scramble to face the crisis after market confidence in Italy collapsed.

It is expected to have an overwhelming majority in both houses, based on wide external support promised by most of the political parties except the devolutionist Northern League, a partner in Berlusconi's outgoing government.

The process is being closely watched by markets still nervous about Italy's ability to break out of a crisis centred on its huge public debt and painfully slow growth, despite the resignation on Saturday of Berlusconi, whose failure to pass crucial reforms precipitated a collapse of confidence.

Underlining how much is at stake, yields on Italy's 10-year bonds went above 7 percent again on Wednesday, the level at which Greece and Ireland were forced into bailouts.

Euro zone defences are not big enough to fund a similar operation for Italy, the zone's third largest economy, which is why it is crucial to the outcome of the current debt crisis.

The government announcement had no immediate effect on yields.

Crucial to Monti's success was the backing of the PDL party of outgoing prime minister Berlusconi, who was forced to step down on Saturday by the rapidly worsening crisis.

President Napolitano, who has engineered the swift government transition in response to the collapse of confidence in Italy, nominated Monti for the premiership on Sunday night.

The president has called for an extraordinary national effort to win back the confidence of markets, noting that Italy has to refinance about 200 billion euros ($273 billion) of bonds by the end of April.

Monti has said his government should last until the next scheduled elections in 2013, despite widespread expectation that politicians intend to give him only enough time to implement reforms before precipitating early polls.

"I hope that this government of technocrats succeeds in addressing all the requests made by the European Central Bank," outgoing Industry Minister Paolo Romani, from Berlusconi's PDL party, told the Corriere della Sera newspaper.

"But let it be clear that as soon as that is done, we expect Monti to give the people the chance to choose a government."

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