New Italian gov’t led by PM Enrico Letta buoys markets

BRUSSELS, Belgium — Italian Prime Minister Enrico Letta, who was sworn in on Sunday, seeks the backing of parliament in a confidence vote on Monday.

Letta is expected to win backing from his own center-left Democratic Party and former Prime Minister Silvio Berlusconi's center-right People of Freedom party.

A vote will take place in the lower house on Monday evening, and a Senate confidence vote is expected to follow, possibly on Tuesday.

Ahead of the vote, Letta said, "Italy is dying from austerity alone. Growth policies cannot wait."

Markets opened with relief Monday that Italy finally has a new government two months after the general election. The Milan stock index performed robustly Monday morning and Italy sold government bonds at its lowest rates since October 2010.

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"We believe that this government has more lasting power than generally acknowledged, and see the risk of early elections in the next 12 months as extremely low," said Giovanni Zanni, director for European Economics at Credit Suisse, according to The Wall Street Journal.

That relief may however be short-lived. Letta's "grand coalition" of parties from the left, right and center faces enormous tasks in trying to drag the country out of recession while pulling down down its $2.6 trillion debt.

Even on its first day, divisions within the coalition were clear. Berlusconi threatened to withdraw the support of his conservative People of Freedom party unless the center-left Letta commits to abolishing an unpopular property tax.

The tax was introduced by the previous government of Mario Monti. Berlusconi's pledge to scrap it was seen as key to his unexpectedly strong showing in the February election.

If Letta gives in, he'll have to plug a $10.5 billion hole in the state budget left by the missing tax revenue.

That could just be the start. Although Berlusconi is not in the government himself, he can be expected to pull the strings of his party's ministers.

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Many fear the media magnate will use his influence to resist unpopular measures needed to get the economy in shape, in the hope to boost his changes in new elections that could come before the end of the year.

Letta will also be painfully aware that the maverick comedian, Beppe Grillo, whose Five Star Movement came third in the February vote, will seize on any unpopular measures from the new government to discredit all the mainstream parties.

Underscoring the country's problems, an unemployed man opened fire on the prime minister's office in Rome on Sunday, injuring two police officers. He said it was in protest at government policies.

Despite the difficulties, Letta's government has already broken new ground in Italian politics. The Cabinet with an average age of 53 is the youngest for years. One-third of the ministerial posts are held by women — an Italian record. Congolese-born Integration Minister Cecile Kyenge becomes the first black Italian minister.

The new faces offer a response to widespread public disillusion with the veteran politicians who have led Italy for years, but it remains to be seen whether Letta's youthful team will have time to prove their worth.

Senior Correspondent Paul Ames contributed analysis from Brussels. Follow him on Twitter @p1ames.