Italy's Monti warns of contagion risks, chides markets

BRUSSELS (Reuters) - Italian Prime Minister Mario Monti said on Thursday his country was threatened by "huge possibilities" of contagion stemming from the euro zone debt crisis and warned markets that pressure from rising sovereign bond yields could complicate reforms.

"It is obviously a difficult place to be in, when you have a country displaying massive and concentrated efforts of consolidation and structural reforms, which are obviously politically and socially costly, and sees its position threatened by huge possibilities of contagion," Monti said.

"Contagion is there because of the overall weakness of the system rather than for the specific weakness of my country," Monti told a conference in Brussels via video link from Italy.

He also warned of a popular backlash if investors demanded deeper fiscal cuts and budget discipline beyond what was already been undertaken.

"I know there is a running argument that unless investors put pressure through higher interest rates on governments, governments will not find the determination to do consolidation and structural reforms. Well, it may also be the opposite."

"We have to be mindful of the sustainability of fiscal discipline and the reform process... It is obvious that there is going to be, sooner or later, a backlash against fiscal and structural discipline," Monti said.

(Reporting by Jan Strupczewski and Robin Emmott)