Italian lawmakers begin Friday to vote on a series of austerity measures designed to fend off bankruptcy as Europe\'s worsening debt crisis threatens a new, region-wide recession.
Greece will also Friday swear in a new unity government to push through tough reforms required for a crucial EU bailout, shortly after Washington urged Europe to act urgently to restore financial stability.
"The crisis in Europe remains the central challenge to global growth," US Treasury Secretary Tim Geithner said after hosting a meeting of Asia-Pacific finance ministers in Hawaii.
"It is crucial that Europe move quickly to put in place a strong plan to restore financial stability."
As European countries took steps to address the crisis, Hong Kong stocks opened 0.95 percent higher Friday, following a rebound in US shares.
Italian senators are scheduled to meet from 0930 GMT to consider a package of reforms that include state asset sell-offs. If approved, it will likely go to the lower house of parliament for final approval Saturday or Sunday.
The Senate session is expected to be attended by former EU commissioner Mario Monti, tipped to replace Prime Minister Silvio Berlusconi who has said he will quit after approval of the measures aimed at calming investor fears.
Those jitters pushed borrowing rates to alarming levels above seven percent Wednesday, but Italian bonds were in greater demand Thursday, pushing the interest rate on Rome\'s 1.9-trillion euro ($2.6 trillion) debt down to 6.9 percent.
In one of his last engagements as Italian leader, Berlusconi is to meet European Union President Herman Van Rompuy in Rome at 1930 GMT, a day after British Prime Minister David Cameron said Italy presented a "clear and present danger" to the eurozone.
US President Barack Obama, meanwhile, spoke to Italy\'s President Giorgio Napolitano Thursday and expressed confidence in his ability "to put an interim government in place in Italy that will implement an aggressive reform program and restore market confidence," said White House spokesman Jay Carney.
EU economic affairs commissioner Olli Rehn warned that the debt crisis was dragging Europe towards a new recession in 2012 due to a "vicious circle" of government debt, vulnerable banks and collapsed spending.
And 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.
But shocked markets recovered somewhat after Greece Thursday appointed Lucas Papademos, a former European Central Bank vice-president, as its new prime minister to lead a new government to be sworn in on Friday.
"I am convinced that the participation in the euro is a guarantee of monetary stability and a factor of economic stability," Papademos said.
His 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.
He must then 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.
Angela Merkel, the leader of economic powerhouse Germany, insisted Italy\'s political situation be "clarified as quickly as possible", echoing an earlier call from International Monetary Fund head Christine Lagarde.
The appointment of Monti, a former EU official who made his name in titanic anti-trust tussles with US corporate giants like Microsoft is not a done deal after several leading members of Berlusconi\'s centre-right coalition insisted on early elections.
Merkel has insisted that Germany wishes to preserve the eurozone in its current form, dismissing reports that Berlin was preparing for a smaller currency union.
A report in the German media said lawmakers in Merkel\'s own party were mulling a move to permit countries to exit the eurozone without leaving the EU.
But speaking to reporters in Berlin, the chancellor dismissed the idea.
"We have a single goal and it is to stabilise the eurozone as it is today, to make it more competitive, to make progress in balancing budgets," she said when asked whether the eurozone must prepare for Italy to exit.
"We believe this common euro area is also capable of thoroughly winning back its credibility, that means for every single country."
A French source has also dismissed the idea that some countries could be ushered out of the single currency.
France itself faced a warning from Rehn that it needed to do more to meet its previous promises to its eurozone partners. But the government responded by insisting it would meet its deficit reduction targets.
The spread between benchmark 10-year French and German government bonds soared to a new record of 170.2 basis points -- 1.702 percentage points -- amid speculation that France would lose its top credit rating.
Ratings agency Standard and Poor\'s admitted Thursday that it had mistakenly announced to some clients a downgrade of France\'s top "AAA" credit rating, sparking a call for a probe from the government.
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