Berlusconi’s Majority Unravels as Allies Push Him to Resign

By Marco Bertacche - Nov 7, 2011 6:25 PM GMT+0700

Prime Minister Silvio Berlusconi’s majority is unraveling before a key parliamentary vote tomorrow, with allies pressuring him to step down as Italy’s borrowing costs surged to euro-era records.

Giuliano Ferrara, editor of newspaper Il Foglio and a former Berlusconi spokesman, reported today that the premier may step down within hours and push for early elections. Italian stocks reversed early losses after the report and the FTSE MIB index advanced 2.4 percent at 12:15 p.m. in Milan, the only major European index to gain today. Italian bonds pared some of their losses after the report, with the 10-year bond yielding 6.53 percent, down from a euro-era record 6.68 percent earlier.

Two Berlusconi allies defected to the opposition last week, and a third quit late yesterday. Six others called for Berlusconi to resign and seek a broader coalition in a letter to newspaper Corriere della Sera. More than a dozen more are ready to ditch the premier’s coalition, Repubblica daily reported yesterday, without citing anyone.

“I fear we no longer have a majority in parliament,” Interior Minister Roberto Maroni said on a talk show yesterday. Maroni, a member of the Northern League party, part of the prime minister’s coalition, said he backs early elections.

Berlusconi Confident

Berlusconi said yesterday he was confident he still had a majority. The desertions may deprive him of the needed support in the lower house for tomorrow’s vote on the 2010 budget report. The Chamber of Deputies failed to rubber-stamp the routine measure in an initial ballot last month, prompting Berlusconi to call a confidence ballot, which he won with 316 votes, barely a majority in the 630-seat body. A second defeat on the budget law would likely lead to another confidence vote, with the defections threatening the outcome.

“Berlusconi may still be in office, but he has not been in power for some time,” Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, said in an e-mailed response to questions. “He no longer administers.”

Berlusconi, 75, faces mounting pressure at home and abroad as investor concern about the fraying government’s ability to cut the region’s second-biggest debt sent the yield on the nation’s 10-year bond to euro-area record today, driving the extra yield investors demand to hold the securities instead of benchmark German bunds to the highest since the introduction of the currency in 1999.

Risk Premium

The slump in Italy’s bonds pushed the difference in yield, or spread, with 10-year German securities up 17 basis points to 471 basis points at 12:15 p.m. in Rome.

The yield on the benchmark bond is now close to the 7 percent level that drove Greece, Ireland and Portugal to seek bailouts. In a bid to boost confidence, Berlusconi on Nov. 4 asked the International Monetary Fund to monitor Italy’s debt- cutting efforts.

In Italy, governments routinely call confidence votes to bring rebellious lawmakers into line and speed the passage of legislation. Berlusconi has used the mechanism more than 50 times since his election in 2008.

The euro weakened and gold reached a six-week high on concern about Berlusconi’s future. The 17-nation currency retreated 0.1 percent to $1.3775 at 11:20 a.m. in London. Credit-default swaps on Italy soared 24 basis points to 517 at 10 a.m. in London, approaching the record 534 set Sept. 22.

No-Confidence Vote

With the ranks of Berlusconi’s majority thinning, opposition leaders are also trying to muster backing for a no- confidence vote, regardless of the outcome of tomorrow’s ballot, to try to topple the leader who has governed for more than half of the 17 years since he entered politics in 1994. Berlusconi has faced only one such vote, which he survived, in December of last year.

Should he fail to muster a majority in either type of confidence vote, the government would fall and President Giorgio Napolitano would then consult with political parties to see whether another majority could be formed. Napolitano could also try to build support for a technical government led by a prominent figure charged with implementing the economic reforms and eventually preparing the country for new elections. If Napolitano cannot forge a new government, elections would be called and likely held two months after the consultations end.

Low Popularity

Berlusconi’s popularity is at a record low and his coalition trailed the main opposition alliance by 10 percentage points in a Nov. 1 poll by IPR Marketing conducted on Oct. 28. No margin of error was given.

Napolitano, 82, who consulted last week with all political parties about the crisis, called for unity at the weekend. Italy can’t mend itself “in a climate of war” and it’s “indispensible” that all parties back the austerity and growth measures promised to the European Union, Napolitano said.

Berlusconi’s government in August approved 45.5 billion euros ($63 billion) in austerity moves, its second deficit- cutting plan in a month, to secure European Central Bank purchases of Italian debt after yields surged above 6 percent. The central bank is free to stop the buying if Italy fails to pass its reforms, ECB Governing Council member Yves Mersch told la Stampa daily in an interview.

Bill Auction

Italy, which is due to auction treasury bills this week, sells more than 200 billion euros of bonds a year. Its 1.9 trillion-euro debt amounts to 120 percent of gross domestic product, and is more than the borrowing of Greece, Spain, Portugal and Ireland combined.

Berlusconi yesterday said he plans to govern until his term ends in 2013 and reiterated that Italy must swiftly approve its economic overhaul. The government intends to present some of the measures as amendments to a bill that Parliament must vote on by Nov. 15, probably through a confidence motion.

“Italy’s ability to gain market confidence will be determined by whether it will implement sound structural reforms within a realistic timeline,” Vladimir Pillonca, an economist at Societe Generale SA in London, said by e-mail. “Market confidence is extremely hard to restore once lost” and “until then, Italy will remain Europe’s epicenter of systemic risk.”

Resignation Calls

Some of Berlusconi’s allies called on him yesterday to consider stepping aside for the nation’s sake. Senator Giuseppe Pisanu, a former interior minister and member of the premier’s party, urged Berlusconi to help form a government of “national unity and salvation.”

Roberto Formigoni, president of the Lombardy region for Berlusconi’s party, recommended the premier quit if he lacks a clear majority and called for a new government with centrist parties. Former Industry Minister Claudio Scajola said he’ll back the premier in the vote this week, while urging Berlusconi to then hand over power to his undersecretary, Gianni Letta.

“I don’t think it’s wise to face an international crisis of this magnitude where Italy has become the weakest link, with these tiny majority numbers,” Scajola said in an interview on Sky TG24 yesterday.

The defectors may abstain from the Nov. 8 lower-house vote, lawmaker Fabio Gava told Repubblica in an interview. That would likely leave Berlusconi short of an absolute majority even if he carried that vote and signal that he would risk being toppled in a confidence vote.

Berlusconi has been calling rebels to persuade them to return to the fold, Repubblica said. “We checked the numbers in the past few hours and we have a majority,” he said by phone at a rally yesterday in comments broadcast on Sky TG24.

To contact the reporters on this story: Marco Bertacche in Milan at mbertacche@bloomberg.net.

To contact the editors responsible for this story: Angela Cullen at acullen8@bloomberg.net.