* Monti outlines Italy austerity measures, wins confidence
* Spain's borrowing costs highest since 1997 at auction
* French also pay more to sell bonds
* Tens of thousands protest in Athens
By James Mackenzie and Alexandria Sage
ROME/PARIS, Nov 18 Italy's new government
has announced far-reaching reforms in response to a European
debt crisis that on Thursday pushed borrowing costs for France
and Spain sharply higher, and brought tens of thousands of
Greeks onto the streets of Athens.
Italy's new technocrat prime minister, Mario Monti, unveiled
sweeping reforms to dig the country out of crisis and said
Italians were confronting a "serious emergency".
Monti, who enjoys 75 percent support according to opinion
polls, comfortably won a vote of confidence in his new
government in the Senate on Thursday, by 281 votes to 25.
He faces another confidence vote in the Chamber of Deputies,
the lower house, on Friday, which he also expected to win
"Only if we can avoid being seen as the weak link of Europe
can we contribute to European reforms," said Monti, who was
sworn in on Wednesday as head of a government of experts after a
rushed transition from the discredited Silvio Berlusconi.
In Athens, at least 50,000 Greeks joined a protest rally
presenting the first public test for a new national unity
government, also headed by an unelected figure, that must impose
spending cuts and tax rises if Greece is to escape bankruptcy.
Police fired tear gas at black-clad youths as protest
marchers beat drums, waved red flags and shouted: "EU, IMF out!"
The Spanish government was forced to pay the highest
borrowing costs since 1997 at a sale of 10-year bonds, with
yields a steep 1.5 points above the average paid at similar
tenders this year.
The euro fell in response. France fared a little better, but
again had to pay markedly more to shift nearly 7 billion euros
of government paper. Fears that the euro zone's second largest
economy is getting sucked into the debt maelstrom have taken the
two-year-old crisis to a new level this week.
"The euro zone has got to deliver something which is going
to calm markets down, and at the moment markets feel like they
are being given no comfort whatsoever," said Marc Ostwald,
strategist at Monument Securities.
In Rome, Monti outlined a raft of policies including pension
and labour market reform, a crackdown on tax evasion and changes
to the tax system in his maiden speech to
He later spoke to French President Nicolas Sarkozy and
German Chancellor Angela Merkel, who all agreed on the need to
accelerate reforms, the three leaders said in a joint statement.
With Italy's borrowing costs now at unsustainable levels,
Monti will have to work fast to calm financial markets, given
that Italy needs to refinance some 200 billion euros ($273
billion) of bonds by the end of April.
Ireland, which has been bailed out and gained plaudits for
its austerity drive, will also have to do more. Dublin will
increase its top rate of sales tax by 2 percentage points in
next month's budget, documents obtained by Reuters showed.
ECB IN SPOTLIGHT
But no amount of austerity in Greece, Italy, Spain, Ireland
and France is likely to convince the markets without some
dramatic action in the shorter term, probably involving the
European Central Bank.
Many analysts believe the only way to stem the contagion for
now is for the ECB to buy up large quantities of bonds,
effectively the sort of 'quantitative easing' undertaken by the
U.S. and British central banks.
France and Germany have argued over whether the ECB should
intervene more forcefully to halt the euro zone's debt crisis
after modest bond purchases failed to calm markets.
Facing rising borrowing costs as its 'AAA' credit rating
comes under threat, France has urged stronger ECB action. Berlin
continues to resist, saying EU rules prohibit such action.
"If politicians think the ECB can solve the euro crisis,
then they are mistaken," Merkel said. Even if the ECB assumed a
role as lender of last resort, it would not solve the crisis,
Euro zone officials hope that if Merkel and others find
themselves staring into the abyss, the unthinkable will rapidly
"The Germans have made some remarkable changes to their
position over the past few months, you have to give them credit
for that, it just takes rather a long time. It's Chinese
torture," one euro zone central banker told Reuters. "They are
not drawing lines in the sand as clearly as they were."
BANKS UNDER THE COSH
With turmoil reaching a crescendo, euro zone banks are
finding it harder to obtain funding. While the stresses are not
yet at the levels during the 2008 financial crisis, they have
continued to mount despite ECB moves to provide unlimited
liquidity to banks.
Fitch Ratings warned it might lower its "stable" rating
outlook for U.S. banks because of contagion from problems in
troubled European markets.
Fellow ratings agency Moody's cut the ratings of 12 German
public-sector banks, believing they were likely to receive less
federal government support if needed.
German Finance Minister Wolfgang Schaeuble said on Thursday
the debt crisis was beginning to hit the real economy and urged
vigilance to prevent it infecting banks and insurance firms.
European officials are in the meantime looking at leveraging
to boost the firepower of the euro zone bailout fund, the 440
billion euro European Financial Stability Facility (EFSF), which
can offer bailouts to euro zone sovereigns in trouble.
A senior euro zone official with knowledge of market
consultations said a majority of investors would be ready to
invest in euro zone debt through one or other of the leveraging
options, but needed an improvement in market confidence to
commit big money..