Prime Minister-designate Mario Monti met party leaders on Tuesday in an urgent bid to form a new government capable of forcing through austerity cuts, as mounting pressure from financial markets threatened to send borrowing costs out of control.
The former European commissioner was meeting representatives from the two biggest parties -- outgoing Prime Minister Silvio Berlusconi's PDL and the centre-left Democratic Party (PD) -- before talks with unions and employers later. He is expected to give a news conference later in the day.
Monti, whose government must reverse a disastrous collapse of market confidence in Italy, said the first day of talks on Monday had been constructive, and politicians understood that sacrifices would be necessary.
But underlining the pressure on Monti on Tuesday was renewed market turmoil , with yields on Italy's 10 year BTP bonds climbing to more than 6.9 percent, close to the 7 percent level generally seen as unmanageable.
After a brief respite at the end of last week , Italy's borrowing costs have now returned close to the levels which forced Greece and Ireland to seek an international bailout.
Rescuing Italy, with its 1.9-trillion-euro public debt, would be too much for the euro zone's existing financial defences.
Monti also said his government should last until the next scheduled elections in 2013, in contrast with widespread predictions that he would have to make way for early elections once he passes reforms promised to Europe.
Monti has said he would like to include politicians in his cabinet but the big parties are insisting it should be made up purely of technocrats, known in Italy as a technical government.
PD leader Pier Luigi Bersani said he had an encouraging meeting with Monti, which covered the financial crisis as well as constitutional reform and Italy's widely criticised election laws, and had not set any time limit on the government.
We confirmed we want to support a technical government of high quality, not to offer it less support but to support it better, he said.
Monti, 68, said on Monday he aimed to serve out the term of the current legislature which is due to end with new elections in 2013 but he faces formidable political headwinds as he seeks to build the support he will need in parliament.
The PDL has offered conditional support but Berlusconi's reported comment to supporters at the weekend that we can pull the plug whenever we want starkly underlined the threat that Monti's government will face.
Newspaper speculation about the identity of the new ministers continued with Guido Tabellini, Rector of Bocconi University in Milan, seen among the favourites to take on the crucial Economy portfolio.
Monti's first day of work followed a frenetic weekend in which Italy's parliament approved economic reforms agreed with European leaders followed by Berlusconi's resignation.
The man who appointed Monti, President Giorgio Napolitano, has called for an extraordinary national effort to win back the confidence of markets, noting that Italy had to refinance some 200 billion euros (172 billion pounds) of bonds by the end of April.
When he makes his first speech to parliament this week, Monti is expected to outline a programme in line with demands made by Italy's European partners.
A convinced free marketer with a record of successfully taking on powerful corporate interests during his decade in Brussels, Monti has spoken frequently of his support for controlling public finances.
He also supports policies such as boosting competition, opening up closed professions and lowering the tax burden on employment.
(Reporting By Philip Pullella and Michael Roddy, writing by James Mackenzie; Editing by Matthew Jones)