Tensions ease as Greek PM sworn in, Italy backs reforms

ATHENS: A new prime minister took office in Greece while Italian lawmakers gave initial approval to a package of key economic reforms Friday, easing market tensions at the end of a week of eurozone trauma.

Lucas Papademos has reassured European Union and International Monetary Fund creditors that Greece will stick to its international obligations as the country races to secure billions in fresh bailout funds by mid-December.

Finance Minister Evangelos Venizelos kept his post in the incoming team which includes a former EU commissioner and several far-right lawmakers and will need to push through painful austerity measures to avoid bankruptcy.

The government'ss first job is to persuade the EU and IMF to disburse eight billion euros from a 2010 bailout deal that is needed by December 15.

Then it must force through painful austerity measures exacted as the price for a second EU bailout package which gives Athens 100 billion euros in loans, the same amount in debt reduction and a further 30 billion in guarantees.

Stocks around Europe rallied following the news from Greece and Italy.

The swearing-in ceremony in Athens came shortly after Italy's Senate voted through a series of measures aimed at stemming financial chaos.

Final approval of the reforms -- expected on Saturday -- is the precondition set by Prime Minister Silvio Berlusconi for his resignation after a parliamentary revolt deprived his centre-right coalition of a majority.

The wide-ranging measures include a major sell-off of state assets and a boost to competition in the labour market with the removal of minimum tariff requirements for professional orders such as lawyers and accountants.

Italy has rushed to pass the measures after Berlusconi's resignation announcement triggered unprecedented turmoil on the markets, with investors spooked that his imminent departure could leave Italy in limbo.

The spread between German and French 10-year government bond rates narrowed after hitting a historic high of 170 basis points on Thursday on concerns that France may join Italy and Greece in struggling to fund its debt.

The Italian 10-year bond rate, which spiked above the 7.0 percent danger level earlier in the week, fell to 6.602 percent from 6.873 percent, still too high for comfort but an improvement nonetheless.

The head of the eurozone crisis fund called on Italy to act swiftly to calm the markets, adding his voice to a global chorus of concern about the prospect of prolonged upheaval in the eurozone's third largest economy.

"Italy doesn't have much time to reassure the markets," Klaus Regling, head of the newly-formed European Financial Stability Facility, said in a newspaper interview. "The country needs a functioning government as soon as possible."

Former EU commissioner Mario Monti, a 68-year-old economist supported by the markets, has emerged as Berlusconi's most likely replacement at the head of a transition government but the nomination is still far from a done deal.

The main opposition Democratic Party backs Monti but parts of Berlusconi's centre-right coalition and the small opposition Italy of Values party want President Giorgio Napolitano to dissolve parliament and call early elections.

Analysts warn an election campaign now -- more than a year before the next parliamentary vote is expected in 2013 -- could plunge Italy further into financial chaos and that its giant debt makes the country "too big to bail".

Napolitano, who is playing a crucial behind-the-scenes role in planning a post-Berlusconi future -- was to meet at 1730 GMT with EU President Herman Van Rompuy, who will then have a working dinner with Berlusconi at 1930 GMT.

Jitters about Italy's 1.9-trillion-euro ($2.6-trillion) public debt and anaemic growth rate has pushed up bond rates to alarming levels well above 7.0 percent this week -- fueling fears of a debt blow-up within months.

"If investors are presented with a matching pair of technocrats in charge of Greece and Italy there could be a relief rally for the euro, if only a short-lived one," said foreign exchange trading company Moneycorp.

EU economic affairs commissioner Olli Rehn has warned that the debt crisis is dragging Europe towards a new recession in 2012 due to a "vicious circle" of government debt, vulnerable banks and collapsed spending.

An EU forecast said growth across the eurozone in 2012 would collapse to 0.5 percent -- a steep drop from its previous prediction of 1.8 percent.