Italy took its first tentative steps into the post-Berlusconi era on Sunday as economist Mario Monti agreed to form a new government.
Just 24 hours after the resignation of Silvio Berlusconi, Monti got the nod from President Giorgio Napolitano to form his technocratic government to rescue Italy from its dangerous economic crisis.
Monti must now draw up a cabinet, lay out his priorities, and see if he has enough support in Parliament to govern. Rival political parties offered various degrees of support, including one demand from Berlusconi's party -- the largest in Parliament -- that his government last only as long as it takes to heal Italy's finances and revive the economy.
"There is an emergency, but we can overcome it with a common effort," Monti told the nation. "In a moment of particular difficulty, Italy must win the challenge to bounce back, we must be an element of strength and not weakness in the European Union, of which we are founders."
Observers see any movement as a positive sign after Berlusconi led the country to the brink of financial ruin with his inability to deal with the economic crisis.
During an appearance on CTV's Question Period, Canadian Finance Minister Jim Flaherty said he was encouraged that both Greece and Italy were finding ways to deal with their debts through their governments.
But, in an interview from Hawaii where he is attending the APEC Summit, he warned, "What we need to see is resolve by the new administrations in those two countries, then we need see that they're going to carry out their austerity programs."
"I suspect (the market reaction) will be fairly positive in the short run," Dow Jones Newswires reporter Christopher Emsden told CTV News Channel from Rome.
"But keep in mind, the Italian government bonds have sunk so much and the yields have risen so much that they are truly an extreme case now," Emsden said. "So even an improvement would leave the country in a situation that would widely be considered unsustainable."
While Italy's economy is considered too big for Europe to bail out, the consequences of an Italian default would be catastrophic not only for Europe but also for Canada and the United States. A default could shatter the 17-country eurozone.
So this post-Berlusconi government will face the monumental task of pushing through economic reforms and austerity measures aimed at dealing with Italy's staggering debt of 1.9 trillion euros ($2.6 trillion). On top of that, Italy must roll over 300 billion euros ($410 billion) in debt over the next year.
Monti, 68, a former European Union competition commissioner, was able to rally enough support to convince the president he was the man for the job but the Northern League party vowed to stay in opposition.
Umberto Bossi said his party won't back the Monti-led government "for now." Bossi said he told Napolitano that his party, whose support kept Berlusconi's conservative coalition in power in three governments, will be a "vigilant" opposition until the economist spells out how he plans to rescue Italy's troubled economy.
"For now, we said, 'no.' Then we'll see the program and decide, time by time" whether to support specific legislation, Bossi said. "In any case, we won't give him any blank cheque."
Angelino Alfano, head of Berlusconi's conservative party, said Sunday his party will back Monti's bid to head the new government but whether the party will actually support the government in the long term depends on who is in the cabinet and details of his program. Alfano said no politicians who opposed Berlusconi while the media mogul was in power should join the new government.
Bossi's party has been demanding early elections instead. He also has opposed one key remedy, a pension reform that raises the retirement age for women.
The austerity measures passed Friday night will still not be enough to revive the dormant Italian economy. They raise the retirement age to 67, but not until 2026.
Italy's economy is hampered by high wage costs, low productivity, fat government payrolls, excessive taxes, choking bureaucracy, and an educational system that produces one of the lowest levels of college graduates among rich countries.
With files from The Associated Press
