April 29 2013

Prime minister Enrico Letta presenting economic program in front of Parliament, with vote of confidence in his new government expected around 8pm local time. Bond auction success for Italy, but analysts cautious. Spanish retail sales tumble again…


Powered by Guardian.co.ukThis article titled “Italy’s new PM wins confidence vote after vowing to avoid death by austerity – as it happened” was written by Graeme Wearden, for theguardian.com on Monday 29th April 2013 17.39 UTC

9.24pm BST

And finally…

Having won tonight's test, Enrico Letta's government faces a second vote of confidence on Tuesday in the Senate. That vote, though, could be overshadowed by his visit to Berlin to meet Angela Merkel.

Letta's vow to spare Italy from the threat of death through 'fiscal consolidation alone' could set up a clash with the German chancellor.

Here's AP's take on tonight's vote:

Italy's new government has easily won a confidence vote of confirmation in the lower house of Parliament.

Premier Enrico Letta's coalition of rival political blocs won the backing of the Chamber of Deputies on Monday night in a mandatory confidence vote on his coalition. The Chamber voted 453 to approve the government, and 153 voted no.

The government faces a required second vote Tuesday in the Senate, where Letta's center-left forces don't have the majority. But media mogul Silvio Berlusconi's center-right party, which is part of the tense coalition government, is expected to give Letta sufficient backing.

Earlier, Letta told the Chamber's lawmakers he intended to lower the tax burden on Italians in hopes of stimulating economic growth.

That's all for tonight. I'll be back tomorrow – until then, goodnight, and thanks. GW

9.12pm BST

Letta wins confidence vote

Finally, news from Rome – the Italian government has won its confidence vote in the lower house of parliament, by a comfortable margin of 453 votes versus 153.

6.39pm BST

One other thing to flag up tonight — the Cyprus government has said it plans to limit the immunity from prosecution enjoyed by its president, Nicos Anastasiades.

It's an attempt to rebuild public confidence in the nation's government following the traumatic way in which its bailout was handled.

Reuters has full details: Cyprus to limit president's immunity from prosecution.

(thanks to reader Hill777 in the comments below for flagging up)

6.27pm BST

Summary of key events

A quick recap on the sitation tonight, while we wait for the result of the vote of confidence in the Italian parliament.

• Italy's new prime minister, Enrico Letta, has pledged to pursue a new growth agenda at home and across Europe, in his first speech since taking office.

Letta opened a confidence debate in the lower house of the Italian parliament by warning that Italy faces a serious economic situation. The 46-year old declared that the country desperately needed a new economic strategy, saying:

We will die of fiscal consolidation alone, growth policies cannot wait any longer.

Letta, who is due in Berlin for talks with Angela Merkel on Tuesday, told MPs that he would cut workplace taxes, and make it more affordable for firms to employ young peope.

He also pledged to reform the welfare system, abolish the housing tax introduced by his predessor, Mario Monti, and hopefully cancel a planned rise in sales tax due this summer.

We have highlights of Letta's speech from 2.23pm onwards, with photos at 3.22pm

Italy's designaded Prime Minister Enrico Letta gives his first speech during before the confidence vote at Deputy chamber.
Enrico Letta speaking today. Photograph: Alessandra Benedetti/Corbis

Our Southern Europe editor, John Hooper, said Letta had offered an "an ambitious government programme". The lack of commitment to austerity might concern Germany, though (see 3.56pm for John's reaction in full).

• Letta's speech came after the financial markets responded positively to the news of a new government in Italy. Shares rallied in Milan and Italian government bonds strengthened, driving down the yield (or interest rate). (see 5.11pm for closing prices)

Italy also sold €6bn of new government debt at the lowest yields since October 2010. Some analysts, though, questioned whether the country was really such a safe credit risk (see 10.31am onwards).

And in other eurozone news…

Spanish retail sales continued to slump in the face of its ongoing recession. They tumbled 8.9% on a year-on-year basis in March (see 9.25am).

Eurozone consumer and economic confidence also remained worryingly low, according to the latest survey from the EC (see 10.16am)

And tomorrow… the Cyprus government will vote on the terms of its bailout plan (see 6.02pm).

6.02pm BST

Cyprus bailout vote tomorrow

Tomorrow, we're expecting the Cypriot parliament to vote on the terms of its own bailout package.

The government is expected to narrowly win. But, as the Open Europe think tank flags up, it could be close….. amid talk that Cyprus could yet quit the eurozone.

Open Europe has also published an interesting piece about how German politicians have been unphased by a strong attack on Angela Merkel from the French socialist party (so far, anyway):

Sorry – who are you again? The rather indifferent German response to French socialists' attack on Merkel

5.52pm BST

Standard & Poor's has announced tonight that the creation of the new Italian coalition has 'no immediate implications" to the country's credit rating.

S&P indicated that Enrico Letta will struggle to bring in the pro-growth reforms he spoke about today.

5.22pm BST

A tag cloud analysis of Enrico Letta's speech shows that the new prime minister didn't say much about one of the key challenges facing Italy – how to liberalise and reform its economy:

Tag cloud of Enrico Letta's speech
Photograph: Europa

That's from Europa – click here to see the original.

Updated at 5.44pm BST

5.15pm BST

Angelino Alfano, the deputy leader of the new Italian government (and key member of the centre-right), has welcomed Enrico Letta's speech.

And as our Southern Europe editor, John Hooper, points out, that won't displease the head of the radical Five Star Movement, Beppe Grillo, who has already denounced the coalition as a cosy stitch-up betweeen the established parties:

5.11pm BST

Europe's stock markets have given the new Italian government a cautious welcome today, with the main indices all closing higher – led by Milan.

As Chris Beauchamp of IG Index explains:

Investors may not have broken open the champagne to celebrate Mr Letta’s incumbency, but any progress in the tortured world of Italian politics is to be welcomed.

He now faces the problem of balancing the demands of bond markets with the expectations of an austerity-weary Italian populace, but the ‘grand coalition’ nature of his administration raises hope that the Italians will unite behind him to put the eurozone crisis firmly behind them.

Italian FTSE MIB: up 364 points at 16929, + 2.2%

Spanish IBEX: up 153 points at 8450, + 1.85%

FTSE 100: up 31 points at 6458, + 0.5%

German DAX: up 58.7 points at 7873, + 0.75%

French CAC: up 58.6 points at 3868, +1.5%

Updated at 5.11pm BST

5.01pm BST

Enrico Letta is expected to hold talks with the head of the European Council, Herman Van Rompuy, on Wednesday after his meeting with Angela Merkel tomorrow night:

4.37pm BST

Enrico Letta's pledge to create a new growth strategy for Italy should be welcomed in the US, which hasn't hidden its frustration over Europe's economic plans.

Last night, Barack Obama said he hopes to work with Enrico Letta to stimulate economic growth, in an official statement from the White House congratulating Letta and his ministers.

The United States and Italy share an enduring and essential friendship — one built on shared values and common commitment to promote peace, liberty, and prosperity both regionally and across the globe, including as NATO allies.

The President looks forward to working closely with Prime Minister Letta and President Napolitano as our two countries jointly seek to promote trade, jobs, and growth on both sides of the Atlantic and tackle today’s complex security challenges.

Earlier this month, Treasury secretary Jack Lew visited Brussels to urge leaders to stimulate economic demand.

Updated at 4.55pm BST

4.07pm BST

And here's Associated Press's first take on the Letta speech:

Italy's new premier says his broad coalition will work to heal the nation's finances while encouraging economic growth.

Enrico Letta is laying out his vision Monday of a pro-European Italy focused on spurring investments and job creation. The center-left leader, who has brought media mogul Silvio Berlusconi's conservatives together in a tense coalition, is seeking support as he faces for confidence votes in Parliament.

Appeasing Berlusconi, Letta said Italians won't have to pay an unpopular property tax this June while a system fairer to the less affluent is devised.

Financial markets have already signaled approval of this apparent end of the months-long political deadlock. Letta says he'll soon go to Brussels, Berlin and Paris to reassure EU allies about Italian economic seriousness.

3.56pm BST

John Hooper: An ambitious programme, but will Merkel like it?

Our Southern Europe editor, John Hooper, provides this rapid analysis of Enrico Letta's speech this afternoon:

Two things strike me immediately about Letta’s speech.

The first is that it was not that of a man who expects to pass a few basic reforms and then clear off. This was an ambitious government programme.

He talked about introducing a new electoral law; reforming the constitution to give the lower and upper houses of parliament different roles, and abolishing an entire level of government (that of the provincial administrations). But the latter was one of the few indications of where Letta intended to get the cash for what appear to be ambitious plans to boost spending and cut taxes.

This was the second point, and I’m not entirely sure that the markets – understandably relieved that the political deadlock here has been broken – have taken it on board. Letta said he would drop an unpopular tax on first homes that brought several billion last year. He plans to reduce employers’ contributions (the ‘tax on jobs’) and he said he was mulling a safety net benefit for families in difficulty because of the recession.

 This is all fine stuff, and it is in line with what many economists would recommend. But it’s not exactly the kind of fiscal austerity that Berlin (and the markets, for the most part) have continued to demand of southern European countries like Italy.

 Silvio Berlusconi’s people were visibly delighted. But I suspect that Letta will be in for a rather cautious welcome when he goes to see Mrs Merkel tomorrow.

3.37pm BST

Shares on the Italian stock market have rallied higher as Enrico Letta outlined his legislative plans. The FTSE MIB is now up 345 points, or 2.1%, at 16911.

3.26pm BST

Letta to visit Germany tomorrow

Enrico Letta will fly to Berlin on Tuesday night for talks with Angela Merkel, part of a flying trip around key European capitals.

The German government just announced that the two leaders will hold a press conference around 6pm local time (5pm BST) before having dinner together.

3.22pm BST

Photos: Enrico Letta’s speech

Here's a couple of photos of Italy's new prime minister speaking at this afternoon's vote of confidence debate, in which he pledged to deliver economic growth, reform welfare provision and clean up the Italian political system (see 2.23pm onwards)

Italy's new Prime Minister Enrico Letta delivers his speech at the Parliament in Rome on April 29, 2013, next to his vice Premier and Interior Minister Angelino Alfano (L) and Foreign Minister, Emma Bonino (R).
Enrico Letta delivers his speech alongside vice Premier and Interior Minister Angelino Alfano (left) and Foreign Minister, Emma Bonino (right). Photograph: ANDREAS SOLARO/AFP/Getty Images
Prime Minister Enrico Letta, standing at center surrounded by his Cabinet, delivers his speech during a vote of confidence to confirm the government, in the lower house of Parliament, in Rome, Monday, April 29, 2013.
Prime Minister Enrico Letta, surrounded by his Cabinet. Photograph: Andrew Medichini/AP

And here's a photo of MPs applauding Pier Luigi Bersani, who is stepping down as Democratic Party (PD) leader. After failing to agree a coalition deal himself, Bersani must now watch his former deputy, Letta, take power.

Italian deputies applaud out-going Democratic Party (PD) general secretary Pier Luigi Bersani (C - red tie) as Italy's new Prime Minister Enrico Letta delivers his speech at the Parliament in Rome on April 29, 2013.
Photograph: ANDREAS SOLARO/AFP/Getty Images

3.08pm BST

Turning to the Italian electoral system, Letta told parliament that Italy must make a commitment to making reforms in time for the next election.

This is a key demand from Italy's president, Giorgio Napolitano, who has threatened to resign unless changes were made.

Letta said his government would examine the state of progress in 18 months, and warned of 'consequences' (which weren't defined) if the process were blocked.

Updated at 3.15pm BST

3.01pm BST

Italian ministers face pay cut

Enrico Letta's government will cut ministers' "supplementary salaries" and other benefits, as part of a drive to cut spending.

He also told parliament he would work with Italy's unions to bring down unemployment:

We need a welfare system which is more universal, more focused on young people and women, extending it to those who are not covered, especially temporary workers.

2.46pm BST

Plans to increase Italy's VAT rate by 1 percentage point, to 22%, will be dropped.

2.40pm BST

Letta: Italy will die without growth policies

Here's the key quote from Enrico Letta's speech this afternoon, explainign the urgent need for growth:

We will die of fiscal consolidation alone, growth policies cannot wait any longer.

(that's via Reuters).

2.38pm BST

Enrico Letta is pledging to reduce taxes on workers and young people, in a drive to stimulate economic growth.

He also said he would halt the unpopular IMU housing tax from June, as demanded by Silvio Berlusconi (see 11.28am for details).

That should ensure the support of Berlusconi's PdL party in this evening's vote.

Letta also vowed to fight corruption in the Italian system by strengthening its justice system.

2.25pm BST

Letta: We need a new growth policy

Enrico Letta, the new Italian prime minister, is teling MPs in Rome that Italy faces a "serious economic situation".

He kicked off today's confidence debate by warning that the country simply cannot cope without new policies for growth.

Letta told MPs that he would visit Brussels, Paris and Berlin this week to meet fellow EU leaders and top officials and demonstrate that he is still committed to Italy's budget targets.

But he also insisted that Europe must change its approach to the financial crisis, so that it can become a "motor for growth".

More to follow

Updated at 2.25pm BST

2.23pm BST

Italian confidence debate begins

Enrico Letta has begun speaking in the Italian parliament, as today's confidence debate gets underway (with a vote scheduled for around 8pm CET).

General view of the Lower house of the parliament in Rome, April 29, 2013.
The lower house of the Italian parliament in Rome today. Photograph: ALESSANDRO BIANCHI/REUTERS

Updated at 3.03pm BST

2.13pm BST

The Bank of Italy has warned that bad debts across the country's banking sector will continue to rise this year.

BOI's latest financial stability report shows that 7.2% of all corporate loans are now in arrears, led by the building industry. It warned that the situation is getting worse:

There is an increase above all in bad loans to companies, especially in the construction sector..

According to leading indicators a further deterioration is underway.

Not surprising, given Italy's economy is set to keep shrinking this year.

Updated at 2.15pm BST

1.51pm BST

Consumer prices in Germany fell by 0.5% in April compared with March, and were just 1.2% higher than a year ago, according to fresh inflation data released this afternoon.

That might just make it even easier for the European Central Bank to cut interest rates when it meets on Thursday (although whether that would do much good is a moot point …)

Updated at 2.20pm BST

1.45pm BST

Italian deputy Prime Minister and Interior Minister Angelino Alfano (R) cheers with Economy and Finance Minister Fabrizio Saccomanni (L) at the end of the swearing in ceremony of the new government at the Quirinale Palace in Rome on April 28, 2013.
Economy and Finance Minister Fabrizio Saccomanni (left) at the end of Sunday’s swearing in ceremony, with Italian deputy Prime Minister and Interior Minister Angelino Alfano (right). Photograph: VINCENZO PINTO/AFP/Getty Images

CNBC has published a nice piece about Italy's new economy minister, Fabrizio Saccomanni, and his close links to the head of the European Central Bank, Mario Draghi:

It explains that Saccomanni's job is to reassure the financial markets that Italy hasn't lost its commitment to fiscal responsibility:

When Mario Draghi left the Italian central bank to go to the European Central Bank (ECB) in 2011, he backed his number two to replace him – only for then prime minister Silvio Berlusconi to oppose the move. Now that Fabrizio Saccomanni has "made it" to head the economy ministry, markets may expect him to be the ECB's new man in Rome.

"Saccomanni is definitely the guy that can keep the dialogue open between Italy and the European Central bank," Giada Giani, European economist at Citigroup told CNBC on Monday.

"He was Draghi's appointed number two at the Italian central bank so he was already his man within the bank. He was definitely one of the favorite guys to succeed him when he left to go to the ECB," Giani added.

Here's the full article: Is Italy's Economy Minister Draghi's Man in Rome?

Saccomanni gave a fairly broad-brush interview yesterday in which he suggested that he would aim to cut taxes, "restructure the state budget" and cut wasteful areas of public spending (Reuters has more details).

We should get more details in this afternoon's condidence debate (which starts around 2pm BST).

Updated at 2.21pm BST

1.26pm BST

Market update

In Milan, the main Italian stock index is up 1.5% this lunchtime – as the stock market rally following the creation of Enrico Letta's new government continues.

Italian government bonds have also continued to strengthen, pushing down yields (Italy's implicit cost of borrowing) following today's succesful bond sale (see 10.31am onwards).

• 10-year Italian bonds yields: down 12.5 basis points at 3.94%.

And here's the latest stock market prices:

Italian FTSE MIB: up 239 points at 16084, +1.44%

FTSE 100: up up 6 points at 6432, + 0.1%

German DAX: up 29 points at 7841, + 0.35%

Spanish IBEX: up 85 points at 8383, + 1.0%

French CAC: up 34 points at 3844, +0.8%

Traders work at their desks in front of the DAX board at the Frankfurt stock exchange April 29, 2013.
Traders working in front of the DAX board at the Frankfurt stock exchange this morning. Photograph: STRINGER/GERMANY/REUTERS

12.55pm BST

Asmussen: come on in, the water’s lovely

Jörg Asmussen, the German member of the European Central Bank's governing council, insisted today that the eurozone will survive the current crisis, and emerge from it in a stronger position — with more countries joining it in future.

Speaking in Berlin today, Asmussen insisted that it still makes sense for some nations, particularly in Eastern Europe, to join the eurozone despite the current crisis. He cited lower transaction costs and the removal of exchange rate risks.

Asmussen said:

I recognise that, at present, the euro area is not an excellent advertisement for stability given the difficulties facing a number of its members.

I also think it is important not to read too much into the current situation.

Latvia remains on track to become the 18th member of the euro area, having filed its application in March.

12.14pm BST

Back to Greece briefly, and the latest opinion poll data shows that New Democracy (the senior member of the coalition) holds a narrow lead over the opposition Syriza party.

ND has 20.5% support, followed by Syriza with 19.9%. Golden Dawn, the neo-Nazi group, is third with 9.3%.

12.01pm BST

Merkel: Come to Berlin, Enrico…

Angela Merkel has phoned Enrico Letta to wish him luck, and to invite the new Italian prime minister to the German capital soon.

Merkel's spokesman, Steffen Seibert, has just tweeted:

Chancellor Merkel has spoken by phone with PM Letta, wished his government success and invited him to a visit to Berlin soon

11.57am BST

Our Southern Europe editor, John Hooper,. reports heightened security in Rome following the shooting of two policemen yesterday:

11.51am BST

Germany's Volkswagen, Europe's largest carmarker, admitted this morning that it has been hit by the slump in demand for new vehicles in Europe.

Operating profits at its VW brand are down by 45% in the first three months of 2013, as profits margins are squeezed by the recession.

Chief executive Martin Winterkorn explained:

The current environment is definitely a tough challenge for the entire industry.

Europe's car industry has been emitting danger signs for months. In March, sales tumbled by over 10% (as covered here in the liveblog last week).

11.31am BST

Ansa, the Italian news agency, reports that Letta will give his speech to the Italian parliament at 3pm local time, or 2pm BST.

The actual confidence vote is scheduled for 8pm CET, or 7pm BST.

11.28am BST

Robin Bew, editorial director and chief economist of the Economist Intelligence Unit, predicts that Enrico Letta's government could soon be blown apart.

Bew fears that disagreements between Letta's Democratic Party (PD) and Silvio Berlusconi's People of Liberty (PdL ) could force Italy back to the polls this year.

One particular "old" policy is already looming over the new government — the housing tax imposed by Mario Monti.

PdL wants to hear Letta promise today to abolish the tax and repay the money already paid (around €8bn in total). If not, the party is threatening not to back the coalition.

Renato Brunetta, its leader in the lower house, told the Il Messaggero news paper:

If the prime minister doesn't make this precise commitment we will not give him our support in the vote of confidence.

(more details here on Reuters).

11.05am BST

Italian bond sale: what the analysts say

Here's an early round-up of analyst reaction to today's successful Italian debt sale (see 10.31am) (via Reuters)

Nicholas Spiro of Spiro Sovereign Strategy reckons that today's sale was "brilliantly timed", as the fears following February's inconclusive general election faded away.

While post-crisis market sentiment towards Italy has never been better, economic conditions have never been worse – as this morning's bleak business and economic confidence surveys show…..

The disconnect between Italy's bond market and the real economy is likely to increase further in the coming days and weeks. This will throw the mispricing of Italian sovereign debt into sharper relief, particularly given concerns about the durability of Mr Letta's government.

Spiro added that Italy's ability to borrow at below 4% for 10-years today was "one of the greatest anomalies in European sovereign credit".

Meanwhile Luca Cazzulani of Unicredit was cheered by the auction results:

The positive outcome of the auction reflects an improved situation compared with the previous auctions, helped by the announcement of a new government. The government still needs a confidence vote but this is not perceived as a problem.

Updated at 2.02pm BST

10.31am BST

Borrowing costs drop at Italian debt action

Success for Italy in the bond markets this morning, as traders give an early thumbs-up to prime minister Enrico Letta.

The Italian Treasury has sold its five and ten-year bonds at the lowest interest rates since October 2010.

Here's the details:

• €3bn of 10-year bonds sold at average yields of 3.94%, down from 4.66% last time.

•€3bn of 5-year bonds at average yields of 2.84%, down from 3.65% last time.

That's reassuring news for Enrico Letta as he gets down to business in Rome. Unlike Mario Monti, whose first task 18 months ago was to win back the confidence of the financial markets, Letta's priorities are domestic — fixing the bleeding economy and reforming the political landscape.

Updated at 10.42am BST

10.16am BST

Key event

Consumers and businesses acrosst the eurozone remain gloomy about the economic situation, data just released showed.

The European commission's monthly measure of economic sentiment fell this month to 88.6, down from March's 90.1. Firms also reported that their business climate has deteriorated this month.

Consumer sentiment improved slightly, but was still deep in negative territory – at minus 22.3, from minus 23.5 in March.

Updated at 2.20pm BST

9.55am BST

Photos: Yesterday’s protests in Athens

There were protests in Athens yesterday as the Greek government approved legislation that will mean 15,000 civil servants are laid off by the end of next year.

Demonstrators marched past the parliament building, and also burned an effigy of a Greek worker, as MPs debated the bills.

epa03680539 Protesters burn an effigy symbolizing a Greek worker during a protest rally, organized by the umbrella trade union groups General Confederation of Employees of Greece (GSEE) and the civil servants' union federation ADEDY, in front of the Greek Parliament in Athens, Greece, 28 April 2013.
Protesters hold a banner during a protest rally, organized by the umbrella trade union groups General Confederation of Employees of Greece (GSEE) and the civil servants' union federation ADEDY, in front of the Greek Parliament in Athens, Greece, 28 April 2013.

The legislation was passed despite the protests, meaning Greece will now receive its next tranche of bailout loans, worth around €8.8bn.

The debate was pretty lively, especially after finance minister Yannis Stournaras introduced a last-minute amendment that would allow firms to avoid paying the minimum wage

Greece's Kathimerini has details:

Opposition parties complained that the amendment was submitted without prior notice and only a few minutes before the vote was due to take place.

They also complained that the minimum wage was being by-passed. Stournaras defended the measure.

“It is true that €490 is a low wage but do not forget that in these cases we are talking about unemployed people,” he said. “This will be a relief for them.”

Greek Finance Minister Yannis Stournaras (L) watch main opposition Radical Left Coalition (SYRIZA) leader Alexis Tsipras (R) who speaks during a debate in the Greek Parliament, in Athens, Greece, 28 April 2013.
Greek finance minister Yannis Stournaras watches main opposition leader Alexis Tsipras speaking during last night debate. Photograph: SIMELA PANTZARTZI/EPA

9.25am BST

Spanish retail sales slide again amid raging jobless crisis

Another piece of grim economic news from Spain – Spanish retail sales fell by a jaw-dropping 8.9% year-on-year in March, the thirty-third monthly decline in a row, following a 7.7% decline in Febuary.

Another signal that the slump in Spain is actually getting worse, following last Thursday's record unemployment data.

The Atlantic ran a very good blogpost on the jobless crisis in Spain over the weekend: Spain Is Beyond Doomed: The 2 Scariest Unemployment Charts Ever

Here's one of the charts:

Spanish long-term joblessness
Photograph: The Atlantic

and here's a flavour of the piece:

Here's the story of Spanish unemployment in three acts. During the boom, joblessness was relatively high due to persistent structural problems. Then it shot up fast and faster as Spain's building bust and then Lehmangeddon hit in 2008. But it has kept climbing up since the panic abated, albeit at a less catastrophic pace, due to the toxic combination of too tight money and budgets.

In other words, austerity hasn't been the path to prosperity. It's been the path to perma-slump.

But the real story of the Spanish depression has been the story of the indignados: the mostly young, long-term unemployed. It's a bit hard to see just how dramatic it's been in the chart above, so I converted it to a line chart below. Almost all of the increase in unemployment since 2010 has been due to the increase in long-term unemployment of two years or more.

8.38am BST

Bond market-maker Gus Baratta has the details of this morning's Italian bond sale, which takes place in around 90 minutes time:

8.29am BST

Italian stock markets rises

Shares are rattling higher in Milan too. The FTSE MIB Index has risen 283 points at 16846, up 1.7%.

Letta's appointment, though, doesn't mean Italy is out of the woods — and analysts are warning that the new PM must quickly devise a coherent economic plan.

Michael Hewson of CMC Markets points out that Letta must maintain working relations with the centre-right PDL party, and his eurozone partners.

The new government will face its first test of cohesion soon enough in June with respect to a new housing tax which Berlusconi’s party has demanded be scrapped, and could well also stress test the new Italian governments relationship with Brussels and Berlin.

Mike van Dulken, head of research at Accendo Markets, also senses trouble ahead:

8.10am BST

Italian borrowing costs fall

Italian sovereign debt is rising in value this morning as traders welcome the news that Enrico Letta's government has been sworn in.

This has pushed the yield on its 10-year bonds down to 3.97%, from 4.06% on Friday (and down from over 7% eighteen months ago, when Mario Monti took over).

That suggests this morning's bond auction could be a success…

Updated at 8.13am BST

7.56am BST

Italian government begins work with confidence vote

Premier Enrico Letta, left, takes the cabinet minister bell handed over by former Premier Mario Monti during the handover ceremony.
Premier Enrico Letta, left, taking the cabinet minister bell from former Premier Mario Monti yesterday. Photograph: Luigi Mistrulli/Sipa Pre/SIPA

Good morning, and welcome to our rolling coverage of the latest events in the eurozone and the wider global economy.

A new era is underway in Italy today as the government led by Prime minister Enrico Letta gets to work, and announces how it will tackle the economic and political crisis raging in the country.

Having been sworn in on Sunday, Letta's government's first task is to win a confidence vote in the Italian parliament. While that shouldn't be a problem for the centre-left and centre-right coalition, the debate will allow the new Italian leader to articulate his vision for the country.

Letta's priorities, in his own words, are to tackle the "enormous, unbearable" economic emergency in Italy, change the pace of Europe's austerity programmes, and reform the discredited Italian electoral system.

He takes over a country suffering a deep recession — and which is still shaken by the shooting yesterday of two Italian policemen in Rome as the swearing-in took place.

One man was hit in the neck, and a second in the leg, while the alleged gunman has been named as Luigi Preiti, 49, from Calabria, a southern agricultural area suffering high unemployment and organized crime (more details here).

A Carabiniere police officer lies on the ground after being shot outside the Chigi Premier's office on April 28, 2013 in Rome, Italy. Two military police officers were shot in the square outside Palazzo Chigi while the new government of Enrico Letta was being sworn in.
A Carabiniere police officer lies on the ground after being shot outside the Chigi Premier’s office in Rome yesterday.

That attack shows the depth of the social crisis suffered by Italians, argued lower house speaker Laura Boldrini, who added:

There's a social emergency that needs answers and our politicians have to start giving them.

The financial markets will also give their verdict on Letta today, when the Italian Treasury holds an auction of five and 10-year government debt.
That sale will be closely watched to see whether investors are still confident in buying Italian debts.

I'll be tracking events in Italy, and beyond, through the day….

Updated at 7.58am BST

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