Prime Minister Silvio Berlusconi's faction-ridden cabinet failed to agree at an emergency session late Monday on raising the retirement age, one of the key economic reforms demanded by Italy's EU partners as a condition for supporting its bonds. Berlusconi responded defiantly to public pressure from French President Nicolas Sarkozy and German Chancellor Angela Merkel at an EU meeting on Sunday, saying in a statement that no one could teach Italy lessons.
With his populist Northern League coalition partners opposed to raising the retirement age to 67 from 65, there was growing talk that a government crisis could lead to an early general election. Northern League leader Umberto Bossi told reporters the centre-right cabinet was at risk over the EU reform demands and the alternative was new elections. "The situation is difficult, very dangerous. This is a dramatic moment," Bossi said.
As the coalition parties held separate meetings, President Giorgio Napolitano said in a statement Italy must do everything to reduce the risk to government bonds by making its commitment to cut public debt more credible and boosting growth. The eurozone's number three economy is at the centre of the storm, despite European Central Bank intervention to buy its bonds, because it needs to issue some €600 billion in bonds in the next three years to refinance maturing debt.
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