Monti's race against time to avert Italian meltdown
Markets anxious as government forms
Incoming Italian Prime Minister Mario Monti vowed last night to get to work quickly to form a new government, and said Italy can heal its disastrous finances.
It came after Italy's President Giorgio Napolitano asked Mr Monti to form a government that is expected to be composed largely of technocrats, after long-time leader Silvio Berlusconi was forced to resign on Saturday evening.
World markets held their breaths overnight, hoping the appointment will prevent a sell-off of bonds and shares continuing into a third week.
Mr Berlusconi was replaced by former European Commissioner Mario Monti, a well regarded economist, in a desperate bid by Italy's lawmakers to stop the country sliding into a bailout, and to prevent the euro slipping deeper into crisis.
"I intend to fulfil this task with a great sense of responsibility in the service of our country. In a moment of particular difficulty for Italy, in a turbulent situation for Europe and the world, the country needs to meet the challenge," Mr Monti said after his nomination.
The new administration has yet to be named but has already gotten the backing of the main opposition party and Mr Berlusconi's own ruling party, at least for now.
However, Mr Monti is under severe pressure to have the outline of a credible government in place before financial markets open today.
Despite only being appointed to the Italian senate last week, he must also begin the task of building support in parliament for his new administration.
He has already won some pledges of support from left and centre-left parties, but not from the Northern League, a long-time ally of Mr Berlusconi.
In the markets, the early signs were positive.
Stocks in the Middle East rose yesterday as investors bet that leadership changes in Italy and Greece mean Europe's debt crisis may be contained, boosting demand for their oil.
A bigger test comes today when Italian treasury officials attempt to sell a sizeable chunk of government debt at a bond auction.
The Italian power change came at the end of a frantic weekend that saw Italy's normally squabbling parliament come together to pass the reforms and Prime Minister Silvio Berlusconi finally end his extraordinary period in office.
He left office as the crisis in Europe dominated talks between Asian leaders in Hawaii. The euro crisis entered a dangerous new phase last week when Italy's borrowing costs rose to above 7pc.
Now Mr Berlusconi's replacement faces a huge task: an Italian default could tear apart the eurozone. Italy's €1.5 trillion economy is one of the biggest in the world.
A prolonged crisis in Italy will inflict huge damage to the economies of Europe and the US, themselves teetering on the brink of new recessions.
To prevent that the new government needs even more painful reforms and austerity measures to deal with its staggering debts, which stand at €1.9tn. Italy has to refinance more than €300bn of its debts next year alone.
Italy has not heard the last of Silvio