By Andrew Davis - Nov 8, 2011 7:01 PM GMT+0700
Nov. 8 (Bloomberg) -- Joergen Moeller, visiting senior research fellow at the Institute of Southeast Asian Studies, talks about Italian Prime Minister Silvio Berlusconi's struggle to stay in power. He speaks from Singapore with Linzie Janis on Bloomberg Television "First Look." (Source: Bloomberg)
Nov. 8 (Bloomberg) -- Michael Fuchs, the Christian Democratic Union party's deputy leader in Germany's parliament, discusses the credentials of former European Union Competition Commissioner Mario Monti, touted as a possible replacement for beleaguered Prime Minister Silvio Berlusconi. Fuchs talks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)
Italian Prime Minister Silvio Berlusconi must show today whether he still has enough support in Parliament to stay in power and implement austerity measures to trim the region’s second-biggest debt and bring down record borrowing costs.
The Chamber of Deputies will vote at 3:30 p.m. in Rome on a routine report on last year’s budget plan that will reveal whether Berlusconi retains a majority in the 630-seat house. It’s the first such test since three party members defected to join the opposition and six others publicly called on the premier to quit. Should Berlusconi fail to muster 316 votes, he would probably face a confidence vote that will decide his fate.
Northern League leader Umberto Bossi, whose party underpins the ruling coalition, called on Berlusconi to “step aside” and for the head of the premier’s party, Angelino Alfano, to become prime minister, Ansa newswire reported today. Berlusconi told key ministers last night he may consider resigning should he not win an absolute majority in the vote, Ansa said, without saying where it got the information.
Italian bonds gained with the yield on Italy’s benchmark 10-year bond falling 4 basis points to 6.617 percent at 12:53 p.m. in Rome. That pushed the difference over German bunds to 479 basis points, after it had reached a euro-era record 496 basis points in earlier trading.
Staying in Power
“The worst outcome for the market would probably be if Berlusconi stays in power,” Peter Schaffrik, head of European rates strategy at RBC Capital Markets in London, said in an interview. “As far as how big the market reaction is assuming he goes depends on what comes next.”
A report yesterday that Berlusconi’s resignation was imminent led to a surge in Italian stocks and the benchmark FTSE MIB stock index extended those gains, advancing 1.4 percent today at 10:55 a.m. in Milan. Berlusconi yesterday denied the reports and said he would call a confidence vote himself next week to secure passage of an austerity package that aims to boost growth in the region’s third-largest economy and lower the 1.9 trillion-euro ($2.6 trillion) debt.
Berlusconi told newspaper Libero that he would use the confidence vote to “look into the eyes of those who try to betray me.”
“The market’s bias is fairly clear. The question is; what comes afterward, assuming he falls?” Schaffrik said.
Spreading Contagion
Berlusconi’s coalition has been unraveling since contagion from the region’s debt crisis led the country’s bond yields to surge in July, prompting Italy’s EU allies and the European Central Bank to demand more austerity measures to balance the budget and try to spur growth in an economy that has lagged behind the European average for more than a decade.
“It’s essential now that Italy stick to its fiscal targets, ensure their implementation and intensify the structural reforms,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters before a meeting of euro-area finance ministers in Brussels yesterday.
Finance Minister Giulio Tremonti abandoned the Brussels meeting this morning to return to Rome for the vote.
The ECB began buying Italian bonds on Aug. 8 after Berlusconi announced he would adopt measures to eliminate the budget deficit in 2013, a year earlier than previously planned. He did deliver a 45.5 billion-euro plan that included some higher taxes and spending cuts, though bickering within his coalition over the package delayed its passage and sapped investor confidence in Italy’s ability to implement the changes.
IMF Monitoring
To try to shore up confidence, Berlusconi presented EU leaders at a summit this month with a timetable for putting parts of that plan into action. It’s that schedule that Berlusconi will put to a confidence vote next week in Parliament if today’s ballot doesn’t derail him first.
Leaders of the opposition parties have said their members will either abstain or vote against the measure today to force Berlusconi to show he can get to the 316-vote threshold that indicates he still holds a majority. Should he miss that mark or lose outright, they may call a vote of no-confidence to try to topple the leader who has governed Italy for half of the 17 years since he entered politics in 1994.
“I fear we no longer have a majority in Parliament,” Interior Minister Roberto Maroni said on a talk show on Nov. 6. Maroni, a member of the Northern League party that underpins the ruling coalition, said he backs early elections.
IMF Monitoring
With the yield on the benchmark bond now nearing the 7 percent level that drove Greece, Ireland and Portugal to seek bailouts, pressure is mounting on Berlusconi to show he can still rule. In a bid to boost confidence, the premier asked the International Monetary Fund on Nov. 4 to monitor Italy’s debt- cutting efforts. The European Commission is sending a mission to Italy this week to ensure that the government follows through on promised reforms, EU President Jose Barroso said last week.
Should Berlusconi 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 administration could be formed.
Napolitano could also try to build support for a so-called technical government led by a prominent figure charged with implementing the economic overhaul and eventually preparing the country for new elections. If Napolitano cannot forge a new government, elections would be called and probably held two months after the consultations end.
Unity Government
“The only possibility is to form a new unity government” headed by someone who’s above party politics “who should be able to give credibility back to Italy and press ahead with reforms,” Lavinia Santovetti, an economist at Nomura International in London, wrote in a note to investors.
Former European Union Competition Commissioner Mario Monti would be such a candidate and would likely be supported by the main opposition parties -- the Democratic Party and the Union of Centrists -- as well as by many members of the premier’s People of Liberty Party, “who would support him only once” the government falls, she wrote.
Should Berlusconi survive the confidence vote next week, he would likely resign anyway and try to get Napolitano to agree to elections in January, rather than negotiating a new government, Giuliano Ferrara, a former Berlusconi spokesman who’s editor of Il Foglio, said in an interview. Ferrara first reported yesterday that Berlusconi was poised to quit.
Berlusconi’s popularity is at a record low and his coalition trailed the main opposition alliance by 10 percentage points in a poll by IPR Marketing conducted on Oct. 28. No margin of error was given.
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 bigger than that of Greece, Spain, Ireland and Portugal combined.
To contact the reporters on this story: Andrew Davis in Rome at abdavis@bloomberg.net
To contact the editors responsible for this story: Angela Cullen at acullen8@bloomberg.net.
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