RENEE MONTAGNE, host:
And late last night, the European Central Bank decided to buy Italian and Spanish bonds to calm market concerns that those two countries would not be able to pay their debts.
NPR's Sylvia Poggioli joins us on the line from Rome.
And Sylvia, how did Italy react to the move by the European Central Bank?
SYLVIA POGGIOLI: Oh, there's a huge amount of relief. In the first hour after the Milan Stock Exchange opened, trading was up. But there has not been an official reaction from Prime Minister Berlusconi. Only on Wednesday, he made fun of the market, saying they're mostly wrong. But two days later, under intense pressure from both the markets and his European partners, Berlusconi's government was essentially put in receivership, and he was told what to do.
European Central Bank President Jean-Claude Trichet, the man who will succeed him in November, the Italian Mario Draghi, sent Berlusconi a letter listing what austerity measures must be taken, how they should be pushed through parliament, and the timetable.
They want passage of legislation on privatization of state-owned companies, more flexible labor regulations and substantial cuts in government spending, all by the end of September.
Last night, after intense conference calls between world leaders, French President Nicolas Sarkozy and German Chancellor Angela Merkel issued a joint statement urging Rome to carry out the ECB's draconian order. It'll be a tough pill for Berlusconi to swallow, but he really has no choice.
MONTAGNE: Well, we saw something like this happen in Greece, when it was obliged by its European partners to take austerity measures, very tough austerity measures that were met with violent protests. How do you think Italians will react to this belt-tightening?
POGGIOLI: Well, Italy has been in recession for some time, so Italians are already feeling squeezed. And the brunt of these measures - as is usual in these cases - will fall on middle-class wage earners. So I do expect big protests in coming months. But again, Italy has no choice. This is not a country on the periphery like Greece, Ireland and Portugal. Italy is the eurozone's third-largest economy. So it's no longer simply an Italian crisis, but a major crisis for the single currency itself.
MONTAGNE: But, you know, ever since the euro crisis began with Greece a year and a half ago, European leaders seem to be grappling in the dark for solutions, unable to speak with one voice. Italy is such a big economy there. Is this crisis in Italy a wake-up call?
POGGIOLI: Well, that's hard to say. The markets have been much faster in reacting to events than the political establishment. European Union leaders unwilling to yield sovereignty have set an example of disunion and dysfunction throughout the crisis.
The economic powerhouse Germany has been the most reluctant to sign onto any decisions that would displease its voters. The crisis has also revived deep-seeded prejudices, northern Europeans describing southerners as lazy and always on vacation, although it turned out that Germans have more vacation days than Greeks. And when they finally do take decisions, such as the creation of the bailout fund three weeks ago, that facility still has to be ratified by member states' parliaments, and that could take months.
MONTAGNE: And this euro crisis has been compounded by the U.S. downgrading by Standard & Poor's. How have Europeans reacting to that? I mean, is there a sense of now Americans also know what it feels like?
POGGIOLI: Well, you know, there's a great deal of concern when things don't go well in the U.S. economy here in Europe. Don't forget, Europe needs the American market for its exports. There's an expression here: When the U.S. has a cold, Europe gets bronchitis. The question now is: What happens to Europe when the U.S. gets bronchitis?
But the major concern right now here in Europe is trying to save the euro. The crisis has put the spotlight on the original sin of the euro. It's a currency shared by 17 countries with a common exchange rate, but without a common fiscal and economic policy. It answers to the directives of 17 different central banks, which is obviously untenable.
And the second major challenge for Europeans right now is how to combine austerity and growth. Many analysts now say it's crucial to promote growth and job creation, which would mean accepting budget deficits and a degree of inflation.
MONTAGNE: Sylvia, thanks very much.
POGGIOLI: Thank you, Renee.
MONTAGNE: NPR's Sylvia Poggioli, speaking to us from Rome. Transcript provided by NPR, Copyright NPR.