UK’s Cameron says he doubts future of euro zone

Greece names an interim prime minister to oversee the international bailout and Italy's senate approved new austerity measures.

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AMSTERDAM // Several European governments buckled yesterday under the growing debt crisis that is threatening to overwhelm the 17-nation single currency euro zone.

Greece named an interim prime minister to oversee the international bailout of the near-bankrupt country. And Italy's government is to change within days after its senate approved new austerity measures but borrowing costs for Rome remained unsustainably high.

The British prime minister, David Cameron, whose country is a member of the European Union but not of the euro zone, poured oil on the fire with remarks on BBC radio in which he doubted the future of the single currency.

He said there were, "real question marks over whether countries can deal with their debts and a big question mark over the future of the euro zone".

The financial pandemonium is starting to extend to France, one of the very core countries of the EU and the euro zone. The French finance minister, Francois Baroin, lashed out yesterday at the rating agency Standard & Poor's that had on Thursday mistakenly and temporarily downgraded France's AAA rating, crucial for keeping down its borrowing costs. Mr Baroin was quoted on the website of the French newspaper La Tribune as saying that the error was, "a rather shocking rumour of information that has no foundation".

But France's woes run much deeper as it reported a drop in industrial output on Thursday and it faced stern warnings from Brussels that it needed to address its growing deficit.

"We believe that it is best that France announces, as early as possible, the measures that are needed to keep its deficit in line with the official targets for 2012 and 2013," Olli Rehn, the EU's economic and monetary policy commissioner, told a news conference in Brussels on Thursday.

The French government has said no more austerity is needed and that current measures should prove sufficient through 2012.

Such assurances may carry little weight among observers and markets on a day when two European governments, Greece's and Italy's, faced the consequences of mounting financial pressures.

Italy's senate yesterday approved a package of austerity measures that is likely to pave the way for the departure of Prime Minister Silvio Berlusconi. He may tender his resignation as soon as today after the package is also approved in the lower house of parliament.

Mr Berlusconi had pledged to see through the approval of austerity steps he had set out in a letter to European leaders last month. But he lost his majority in parliament and has pledged to step aside.

His most likely replacement is the former EU competition commissioner, Mario Monti, who was made senator for life by Italy's president on Wednesday. But Mr Monti still faces several obstacles.

Though Mr Berlusconi is said to have decided against snap elections, his party, People of Freedom, is still undecided. It is not yet clear either whether it will give its support to Mr Monti, who is mainly backed by the opposition left-wing Democratic Party.

More worrying for the country's economy, many domestic and foreign observers estimated that the package of austerity and savings measures that is now being agreed will prove insufficient.

Even so, Italy's financial and economic health is thought to be in a much better shape than Greece's and the largest threat to its ability to repay its debts is the spiralling cost of borrowing. The European Central Bank this week continued to buy Italian bonds, somewhat relieving the pressure.

The developments in Italy and Greece were also cause for some positive reactions by markets, who saw them as at least partially addressing some of the issues threatening the euro zone.

In Athens, after days of wrangling, Lucas Papademos was named as the new prime minister of a transitional government. The former vice-president of the European Central Bank is scheduled to be in power for just months before new elections, in order to implement an international bailout for Greece that was agreed to in Brussels at the end of October.

The new government is made up the two biggest parties - the socialists of former prime minister George Papandreou, and the centre-right New Democracy. But it also includes the right-wing nationalist party LAOS.

Greece has been subjected to several years of austerity and has faced mounting resistance among the population against further hardships. Mr Papademos may be given a short period of grace because he is a technocrat and not a well-known politician. But some activists in Athens have predicted a "turbulent few months."

* With additional reporting by Associated Press and Agence France-Presse