Italy's Outgoing Party Predicts Success for Monti

The prospects of a new Italian government soon were boosted on Tuesday by backing from the biggest political party as financial market pressure mounted on prime minister designate Mario Monti to act quickly.

Angelino Alfano, secretary of outgoing Prime Minister Silvio Berlusconi's centre-right PDL party, told reporters after consultations with Monti: "We think that the efforts of Professor Monti are destined to have a good outcome."

The backing from the PDL is significant because many of its members have until now opposed the predominantly technocrat government that Monti is scrambling to form to face a burgeoning debt crisis that threatens the whole euro zone.

Monti's new government must have strong parliamentary backing to implement what are likely to be unpopular austerity reforms demanded by European leaders. Any failure or delay in his efforts would cause a devastating new assault from financial markets.

Underlining the pressure on Monti was renewed market turmoil , with yields on Italy's 10 year BTP bonds climbing to more than 6.9 percent, close to the 7 percent level at which Greece and Ireland were forced into bailouts.

The Italian association of foreign banks added to the pressure, warning that failure by former European Commissioner Monti would be a disaster.

Monti began consultations on Monday after his nomination by President Giorgio Napolitano on Sunday. He is expected to wind up by Tuesday night and could announce his new ministerial line-up almost immediately after, according to a senior official source.

Monti also met the second biggest political group, the centre-left Democratic Party (PD), before talks later with unions, employers, youth and womens' organisations.

Monti, whose government must reverse a disastrous collapse of market confidence in Italy, said the first day of talks on Monday had been "constructive", and politicians understood that sacrifices would be necessary.

BRIEF RESPITE

After a brief respite at the end of last week when it became clear Berlusconi would resign , Italy's borrowing costs have now returned to critical levels amid uncertainty over whether Monti will succeed.

Rescuing Italy, with its 1.9-trillion-euro public debt, would be too much for the euro zone's existing financial defences.

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

Monti has said he would like to include politicians in his cabinet but the big parties are insisting it should be made up purely of technocrats -- a sign of their wariness about a process forced by financial pressure.

It will also represent a danger for Monti, robbing him of political cover for unpopular reforms.

Democratic Party leader Pier Luigi Bersani said he had an "encouraging" meeting with Monti, which covered the financial crisis as well as constitutional reform and Italy's widely criticised election laws, and had not set any time limit on the government.

"We confirmed we want to support a technical government of high quality, not to offer it less support but to support it better," he said.

European Council President Hermann Van Rompuy said the euro zone was watching events in Italy "very closely".

Monti, 68, faces formidable political headwinds.

Berlusconi, forced out to the mocking jeers of thousands of protesters on Saturday, is reported to have told reporters the PDL "can pull the plug whenever we want".

Newspaper speculation about the identity of the new ministers continued with Guido Tabellini, rector of Bocconi University in Milan, seen among the favourites to take on the crucial economy portfolio.

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

A convinced free marketeer with a record of successfully taking on powerful corporate interests during his decade in Brussels, Monti has spoken frequently of his support for controlling public finances.

He also supports policies such as boosting competition, opening up closed professions and lowering the tax burden on employment.