Mario Monti to Form New Italy Government

By Andrew Davis and Chiara Remondini - Nov 14, 2011 3:40 AM GMT+0700

Mario Monti, former European Union competition commissioner, will lead a new government in Italy after contagion from the region’s debt crisis led to the unraveling of Prime Minister Silvio Berlusconi’s coalition.

President Giorgio Napolitano offered Monti the post after sounding out the country’s political parties for their support in consultations today at the Quirinale Palace in Rome.

Monti, 68, must present the names of his Cabinet ministers to Napolitano before he can be sworn in. He will then face confidence votes in both houses of parliament. Leaders of Berlusconi’s People of Liberty party earlier today told Napolitano that they’ll support a Monti government, virtually ensuring his confirmation in parliament, which may come this week.

“If someone tries to set up a government in two hours, it ends up taking a lot longer,” Napolitano said in a nationally televised address. “How long this will take was never discussed. Monti will proceed as fast as he can while listening, evaluating and deciding whether to come here” and present his Cabinet list, the president said.

Monti’s Priority

Berlusconi’s government fell apart after defections left him without a majority and the country’s 10-year bond yield surged to more than 7 percent, the level that prompted Greece, Ireland and Portugal to seek EU bailouts. Monti’s priority will be to implement measures to cut the euro-region’s second-biggest debt and boost an economy where growth has lagged behind the euro-area average for more than a decade.

“Italy must once again be an element of strength, not of weakness, in the European Union,” Monti said after meeting Napolitano. He underscored that Italy helped found the EU, “in which we must be protagonists.” Monti also said his program would focus on cleaning up public accounts and boosting economic growth.

“The spread should narrow a bit on the news of Monti’s appointment, even though the impact will be mainly on the short- term bonds,” Fabrizio Fiorini, chief investment officer at Aletti Gestielle SGR SpA in Milan, said in an interview. “I expect about 25 basis points for Monti and another 25 for the list of ministers and the program. The long-term 10-year spread will narrow much less, about half that.”

Italy’s 10-year bond yield jumped to a euro-era record 7.48 percent on Nov. 9, driving the yield difference with German bonds to 575 basis points, more than twice the average for the year. Two-year yields rose as high as 7.14 percent on Nov. 10 and Italy was forced to pay 6.087 percent on one-year bills at an auction on Nov. 10, the most in more than 14 years.

Yields Narrow

As support for a Monti government grew, 10-year yields narrowed more than 100 basis points on the final two trading days of the week and the FTSE MIB stock index closed up 3.7 percent on Nov. 11, the biggest gain of any European benchmark.

“It’s key to recover the confidence of investors and of the European institutions,” Napolitano said at the presidential palace. “It’s a responsibility we feel we have toward the whole international community and to protect the stability of the common currency.”

Monti is an economist and president of Bocconi University in Milan, the country’s top-rated business school. He’s also an adviser for Goldman Sachs Group Inc.

Candidates

Monti plans to tap the Bocconi staff to fill key positions in his new administration, Corriere della Sera reported, without saying where it got the information. Monti may name Guido Tabellini, 55, another Bocconi economics professor, as finance minister, Corriere said. Giuliano Amato, a former prime minister and now an adviser to Deutsche Bank AG, may be named foreign minister, the newspaper said.

Monti spent almost a decade in Brussels as EU commissioner, first for the internal market and then for competition. In the latter role, in 2001 he blocked General Electric Co.’s $47 billion takeover of Honeywell International Inc., the first time the EU had stopped a deal previously approved by U.S. authorities. He also levied a record 497 million-euro ($683 million) fine against Microsoft Corp. He’s been an international adviser to Goldman Sachs for six years.

To contact the reporters on this story: Andrew Davis in Rome at abdavis@bloomberg.net; Chiara Remondini in Milan at cremondini@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net