The euro zone debt crisis risks becoming a political crisis for Italian Prime Minister Mario Monti, who is facing mounting pressure to ease Italy's borrowing costs at a European Union summit that started on Thursday. By Gavin Jones.
President Giorgio Napolitano said he was worried about increased infighting between the parties who back Monti in parliament, with speculation swirling that the government could fall within a few months.
In a statement, Napolitano said he welcomed the fact that Monti had broad parliamentary backing to negotiate at the Brussels summit. "However it is worrying that at the same time the disputes and conflicts are increasing among the parties that support the government," he added.
The centre-left Democratic party (PD) and former prime minister Silvio Berlusconi's centre-right Party of Freedom (PDL) are demanding that Monti win backing for pro-growth measures at the summit in order to ease Italy's economic recession, as well as secure steps to limit its rising borrowing costs.
Italy's plight was highlighted on Thursday by employers' lobby Confindustria, who said the economy was "in the abyss", and would contract by 2.4 percent this year, twice as much as the government's official forecast.
The budget deficit would also fall far more slowly than Monti has promised, Confindustria warned.
The country's political parties agreed to back Monti as the head of an unelected government rather than go to elections when a discredited Berlusconi fell from office last November with Italy on the verge of a Greek-style debt default.
However, they already have their eyes on the next election which must be held by next spring, and are happy to blame Monti as Italy's economic and financial difficulties continue to rise.
Adding to a confused and unstable picture, the political parties are also internally divided between factions that are keen to pull the rug on Monti and others that support him.
"Monti has prestige, but he must also bring home results," Angelino Alfano, national secretary of Silvio Berlusconi's PDL party said on Thursday.
"We are asking for two measures: criteria that allow more public investments that today are zero in all of Europe, and a mechanism that puts a ceiling on the spread" between Italian bonds and safer German Bunds.
PD leader Pier Luigi Bersani also said Monti should fight to have some public investments stripped from budget deficit calculations.
So far, Monti's efforts to have such policies adopted at an EU level have been firmly rebuffed by Germany, the region's strongest economy and paymaster.
In a hard-fought victory on Wednesday, Monti won parliamentary approval for his contested labour reform which aims to ease firing procedures, broaden unemployment benefits from 2017, and end abuses of temporary hiring schemes.
The Fitch Ratings agency said on Thursday the move was positive and would help make the labour market more flexible.
But it added that labour reform needed to be part of broader efforts to boost competitiveness, including reform of the public administration and measures to improve the business environment.
"Opportunities to enact these may be limited as the general election, due in April, approaches," Fitch said in a statement.
Monti's popularity has fallen steadily this year as the recession has deepened and Italians have felt the weight of austerity measures, made up largely of tax hikes.
His approval rating stood at just 33 percent, according to a poll published this week by the SWG agency, compared with 71 percent when he took office in November.
However, the picture for the political parties is even bleaker and despite his weakness, Monti remains more popular than any other political leader.
The same SWG poll showed that PDL, the former ruling party, would come in third behind PD and the rebel Five Star Movement led by former comedian Beppe Grillo.
Italy's benchmark borrowing costs hit six-month highs at auction on Thursday, piling further pressure on Monti, reflecting fears the summit will not offer convincing solutions to the euro zone's two and a half year-old debt crisis. DM
Photo: Mario Monti (Reuters)