By Alessandra Migliaccio - Nov 11, 2011 3:28 PM GMT+0700
Nov. 11 (Bloomberg) -- Italy's Senate will vote on debt-reduction measures today in an attempt to shore up investor confidence and pave the way for a new government. David Tweed reports on Bloomberg Television's "Countdown" with Linzie Janis. (Source: Bloomberg)
Italy’s Senate will vote on debt- reduction measures today in an attempt to shore up investor confidence and pave the way for a new government that may be led by former European Union Competition Commissioner Mario Monti.
The Senate will vote on a package of measures promised to the European Union aimed at boosting growth and cutting Italy’s debt of 1.9 trillion euros (2.6 trillion), the world’s fourth biggest. Lawmakers rushed to pass the measures after Prime Minister Silvio Berlusconi’s parliamentary majority unraveled this week, leading bond yields to surge to euro-era records.
The upper house will start debating the measures at 10.30 a.m. in Rome, with a vote likely in the afternoon. The Chamber of Deputies will give final approval tomorrow and Berlusconi will resign “a minute later,” said Gianfranco Fini, the speaker of the house. President Giorgio Napolitano met with Monti late yesterday in Rome, a day after making him a senator for life, which will grant him voting rights in the Senate.
“The Monti government can only come to pass if Berlusconi acts responsibly and says yes to a unity government,” Fini said last night on Sky TG24.
Lawmakers from Berlusconi’s People of Liberty party met with the premier last night in Rome to discuss the situation and remain divided over whether to try to accept a Monti government or cobble together enough backing for a new People of Liberty- led government, news agency Ansa reported, citing people who attended the meeting.
‘Difficult Times’
“Monti is by far the best candidate to lead a technocrat government, which is the only way out of Italy’s predicament,” James Walston, a professor of politics at the American University in Rome, wrote in an e-mailed message. The measures voted on today “will be a start, but then there will be difficult times, more cuts and greater hardships.”
Berlusconi offered to resign on Nov. 8 once the budget measures were approved by parliament. He came under pressure to step down after a series of defections left him without a majority.
On Nov. 9, Italy’s 10-year bond yield crossed the 7 percent threshold that prompted Greece, Portugal and Ireland to seek bailouts. Italian 10-year bonds advanced today, with the yield down 17 basis points to 6.72 percent at 9:21 a.m. in Rome, on signs of progress in forming a new government and after the Treasury sold 5 billion euros of one-year bills.
Non-Partisan Leaders
Italy has a tradition at times of political crisis to reach out to non-partisan leaders. Monti spent almost a decade in Brussels as EU commissioner and previously had broad backing in Italy. He was first appointed to the commission by Berlusconi in 1994 and then confirmed by the opposition when it came to power after Berlusconi’s first government collapsed.
The austerity measures before the Senate today include a pledge to raise 15 billion euros from real-estate sales over the next three years, a two-year increase in the retirement age to 67 by 2026, opening up closed professions within 12 months and a gradual reduction in government ownership of local services.
The budget measures were first pledged to EU allies at a summit on Oct. 26 and are aimed at convincing investors Italy can overhaul its economy to reduce borrowing. Months of squabbling within Berlusconi’s Cabinet over the plans helped fuel the government’s collapse and the selloff of the country’s debt.
Consulting Parties
Once Berlusconi resigns, Napolitano will consult with political parties to see if they can agree to form a new government. Napolitano held a round of consultations with the parties earlier this month as the crisis deepened, an exercise that will likely speed an agreement. The president could complete the party talks on Nov. 13 and immediately offer the position to Monti, news agency Ansa reported.
U.S. President Barack Obama spoke with Napolitano and “expressed confidence in President Napolitano’s leadership to put an interim government in place in Italy that will implement an aggressive reform program and restore market confidence,” White House press secretary Jay Carney said yesterday.
Napolitano may ask Bank of Italy Director General Fabrizio Saccomanni and former Prime Minister Giuliano Amato to join the new government, Sky TG24 reported without saying where it got the information.
Deficit Target
The EU has been stepping up the pressure on Italy to adopt the budget measures and has said the government’s economic forecasts are too optimistic. The European Commission said yesterday that Italy won’t make good on its pledge to balance the budget in 2013 and will finish that year with a deficit of 1.2 percent of gross domestic product. It also said that Italy’s recovery came to a standstill in the third quarter and the economy will probably contract in the final three months.
The country’s deficit of 4.6 percent of GDP last year was similar to Germany’s at 4.3 percent and less than that of the U.K. and France. Italy also has a surplus in its primary budget, which excludes debt interest payments.
Still, debt at almost 120 percent of GDP and economic growth that has trailed the EU average for over a decade has unnerved investors who have been shunning Europe’s riskiest assets.
“It’s clear that only a comprehensive and wide-ranging package of reforms can kick-start Italian growth again,” EU Economic and Monetary Affairs Commissioner Olli Rehn said yesterday. “The first and foremost thing for Italy is to restore political stability and capacity of decision making” as well as “firm and determined action” on fiscal targets.
To contact the reporter on this story: Alessandra Migliaccio in Rome at amigliaccio@bloomberg.net
To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Angela Cullen at acullen8@bloomberg.net
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