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Debt Weighs On European Politics

LINDA WERTHEIMER, HOST:

This is WEEKEND EDITION from NPR News. I'm Linda Wertheimer. It was a tumultuous week in Europe, and for Italians it's not over yet. As interest rates soared on Italian debt, the markets sent a signal to Prime Minister Silvio Berlusconi: investors no longer had confidence he could save Italy from default. Berlusconi promised to leave the office he's occupied for most of the last seventeen years, but not until the Italian parliament passed a package of austerity measures. The Senate did that yesterday, and today it's the lower house's turn. NPR's Sylvia Poggioli is on the line to give us the latest. Sylvia, welcome.

SYLVIA POGGIOLI, BYLINE: Thank you, Linda.

WERTHEIMER: It seems likely that Berlusconi will be replaced as prime minister by the economist and technocrat Mario Monti. What can you tell us about him?

POGGIOLI: Well, he's the opposite of Berlusconi. He's tall, distinguished and very reserved. He studied at Yale with Nobel Prize-winning economist James Tobin, and he served for 10 years as EU commissioner. And in that capacity, he initiated antitrust proceedings against Microsoft and ordered the company to pay $613 million in a fine for abusing its dominant position. But it's not a done deal that Monti will be able to form a national unity government because Berlusconi's government is sharply divided. Berlusconi himself, who doesn't seem to have fully absorbed that his power base is evaporating and who's very worried about how his businesses are faring on the stock market, at first said yes to Monti but now he seems undecided. However, there's so much pressure. EU leaders as well as the markets are openly rooting for Monti.

WERTHEIMER: Berlusconi said he would step down only after the austerity package was approved. What does the austerity measure entail?

POGGIOLI: Well, these measures including raising the retirement age from 65 to 67 by the year 2026, the selling of some $20 billion in state assets, the privatization of local transport services and tax breaks for companies that hire women and young workers. The package also includes a reform promised for years but never achieved, which is the liberalization of what are known as protected professions - not only doctors and lawyers but also taxi drivers have a kind of guild that sets prices. But the European Union has already said that much more draconian measures are needed to reduce Italy's $2.6 trillion debt.

WERTHEIMER: Greece also had a change of prime minister this week. The new premier is also what's described as a technocrat, isn't that right?

POGGIOLI: That's right. Lucas Papademos is a former vice president of the European Central Bank, and he was now teaching at the Kennedy School at Harvard. Like Monti, he's highly respected in international circles, but his task will be harder. Greece has experienced very tough belt tightening austerity for two years and the situation has only gotten worse; unemployment has doubled and it's forecast to reach 20 percent next year. There have been big protest demonstrations, some very violent. And opinion polls show that Greek patience with politicians is an all-time low and there really is a potential danger of social explosion. And in addition, Greeks are diffident toward the European Union as it dictates laws and is perceived as taking away Greek national sovereignty.

WERTHEIMER: There's a sense, isn't there, that the European Union has been dithering and has not handled this crisis. Has this been a wakeup call for the EU - Italy going down, Italy too big to fail, all that?

POGGIOLI: Well, we still don't know. On Wednesday, when yields on Italian bonds soared over 7 percent, the specter of Italian bankruptcy loomed pretty starkly before everyone's eyes. There was panic everywhere in Europe. Britain announced it was preparing contingency plans should the Eurozone collapse. EU Commissioner Olli Rehn warned that all of Europe, including Germany, risks slipping into recession and he said this is the last wakeup call. But other than make it very clear that Berlusconi should get out of office as soon as possible, it's not exactly clear what new measures the EU intends to take. You know, up till now it seems that the medicine that was prescribed in Greece, Ireland and Portugal - tough austerity, savage budget cuts and tax hikes - has worsened the crisis. And many economists in Europe and in the U.S. are pushing for opposite policies that stimulate growth.

WERTHEIMER: NPR's Sylvia Poggioli reporting from Rome. Thank you very much.

POGGIOLI: Thank you, Linda. Transcript provided by NPR, Copyright NPR.