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Monti fights pressure in race to form Cabinet

Italy's Mario Monti faces more market pressure on Tuesday as he scrambles to form a new Cabinet to lead the country out of an unprecedented crisis, having warned that Italians face "sacrifices" ahead.

world Updated: Nov 15, 2011 07:38 IST

Italy's Mario Monti faces more market pressure on Tuesday as he scrambles to form a new Cabinet to lead the country out of an unprecedented crisis, having warned that Italians face "sacrifices" ahead.

The former top European commissioner was set to start a final round of talks at 0830 GMT with the leaders of Italy's two main political movements, including outgoing prime minister Silvio Berlusconi's People of Freedom party.

The technocrat would then meet trade union leaders and representatives of women's and youth groups as he tries to build consensus behind a Cabinet that will have to implement painful reforms.

"Blood no, tears no, but maybe sacrifices," the economist told reporters on Monday when asked what Italians should expect, following a day of heavy pressure from investors reacting to a brief political vacuum left by Berlusconi's resignation.

"I am not ignoring the importance of the markets but we are in a democracy and there is a certain time that is needed," the 68-year-old Monti said.

An initial stock rally on Monday following his nomination quickly petered out and shares ended the day down 1.99%, while borrowing costs lowered but remained at high levels that have set off alarm bells around the world.

The toxic mix of a 1.9-trillion-euro public debt mountain, an extremely low growth rate and high bond rates are keeping markets anxious.

Hong Kong stocks opened 1.04% lower on Tuesday, while Tokyo was down 0.66% and Sydney 0.62%.

Monti said on Monday that he wanted his Cabinet to stay on until 2013 -- the scheduled date for the next elections, defying calls for a limit from some politicians.

"I would not accept a time limit," he said.

There were scenes of joy in the streets of Rome on Saturday when Berlusconi resigned following a parliamentary revolt and a wave of market panic, but somberness has returned with Italy's economic and political future still uncertain.

International leaders have urged Italy to move quickly to adopt long-delayed measures to fight the debt crisis, worried that a blow-up of the country's giant public debt could drag down the rest of the eurozone.

President Giorgio Napolitano has said he wants the government to be in place by the end of the week and has warned of a need for urgency because 200 billion euros ($273 billion) of Italian debt becomes due by April next year.

The Sole 24 Ore financial daily said markets were uneasy and "any delay in forming the Monti government could be extremely dangerous".

A report from RBS banking group said things in Italy were "still not moving quickly enough to quell fears about the collapse of the currency."

Standard & Poor's downgraded Italy's debt in September to A/A-1 -- the first of the big three ratings agencies to do so -- warning of government weakness and the country's diminishing economic growth prospects.

However, Monti's nomination was immediately applauded by European Union president Herman Van Rompuy and European Commission head Jose Manuel Barroso.

"What I hope now is that in Italy there will be a necessary political consensus," Barroso said on a visit to Paris on Monday.

"If there is real consensus around this new government, I hope that confidence ... of the investors will come back to Italy."

The European Union, which together with the International Monetary Fund is auditing Italy, has warned the country may need to pass extra austerity measures.

Italy's top business leader Emma Marcegaglia -- head of the Confindustria employers' association -- said it a government must be formed soon to "turn its hand to reforms which are fundamental for a return to growth."