ROME (Reuters) ? Prime Minister Silvio Berlusconi pledged on Wednesday to step up economic reforms as he called for a broad-based effort to fight the market turmoil which has threatened to drag Italy into a Greek-style financial crisis.
Market concern has risen sharply since early July as attention focused on splits in Berlusconi's center-right government and on discord between Berlusconi and Economy Minister Giulio Tremonti, seen as an anchor of stability.
"The country is economically and financially solid. In difficult moments, it knows how to stay together and confront difficulties," Berlusconi said in a speech to parliament.
"The government and parliament will act, I hope, with a large political and social consensus to fight every threat to our financial stability. Today more than ever, we need to act all together," said Berlusconi, in a speech that analysts said offered few details.
With Italy, the euro zone's third largest economy, now being sucked into the debt crisis, alarm has spread at the prospect of a wider regional emergency which would overwhelm bailout measures created to help troubled smaller countries like Greece.
Berlusconi's speech follows weeks of growing turbulence on financial markets which has sent yields on Italian and Spanish 10-year bonds to new 14-year highs and hit bank stocks hard.
A 48-billion-euro austerity package, passed in record time last month and intended to keep the government on track to bring the budget into balance by 2014 and control Italy's huge public debt, has failed to calm market fears.
SPENDING CUTS AND TAX MEASURES
Worries have focused on the fact that a large part of the spending cuts and tax measures will not take effect until after the next scheduled elections in 2013 and will do little to stimulate Italy's chronically sluggish economy.
Berlusconi, weakened by scandals and largely silent over the past weeks, delayed his address to the lower house until after the close of the Milan bourse but made few specific proposals on either reform or deficit cuts.
Berlusconi is due to meet employers' groups and unions on Thursday to try to thrash out a plan to stimulate an economy which has been among the most sluggish in the world over the past decade.
"I didn't have very high expectations but even so the content was quite disappointing," said Chiara Corsa, an economist with Unicredit in Milan. "He showed no willingness to bring forward any of the austerity measures to next year, which we had hoped for and markets would have appreciated.
"To look at things constructively, it was positive that he didn't just say everything was due to speculation and he said the government had to act to boost growth," she said.
"It was also positive that he appealed to unions and the opposition to work with the government, because in the current situation without national cohesion we won't get anywhere."
With Spain also under market attack and doubts growing about the stability of the whole euro zone, the problems may already be beyond the capacity of a single government to fix.
Yields on Italian 10-year bonds are now over 6 percent, a level seen as unsustainable in the long term and the premium that investors demand to hold Italian bonds over benchmark German debt has widened to close to Spanish levels.
Italian bank stocks, which have been pounded in recent days, rebounded from a slide that has seen shares in the two biggest banks drop more than 20 percent since the start of July.
The main Milan stock market index closed down 1.5 percent after hitting a 27-month low earlier on Wednesday.
European Economic and Monetary Affairs Commissioner Olli Rehn, who spoke to Tremonti by telephone on Wednesday, sought to provide reassurance with a statement saying Italy was on track to ensure both sustainable growth and budget consolidation.
Despite a public debt equivalent to 120 percent of gross domestic product, Italy has until recently stood apart from the crisis thanks to a relatively modest budget deficit, high private savings and a conservative financial system.
However, concerns about the government's ability to overcome internal divisions and revive the stagnant economy have changed perceptions markedly in recent weeks, after warnings from credit ratings agencies that they could cut Italy's credit rating.
"It's right to say the crisis is not just Italian, but the government has to deliver on the Italian front," said Fabio Fois of Barclays Capital after Berlusconi's speech.
"They need to do more structural reforms, on the labor market, they need to liberalize the services, and goods sector."
On Tuesday, finance officials from the government and the Bank of Italy held an emergency meeting after concerns over Italy's public debt sent borrowing costs to record levels.
(Additional reporting by Deepa Babington, Giuseppe Fonte, Catherine Hornby and Nigel Tutt and Silvia Aloisi in Milan)
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