Italy Vote to Pave Way for Berlusconi Exit

By Alessandra Migliaccio and Lorenzo Totaro - Nov 12, 2011 9:18 PM GMT+0700

Italy’s Chamber of Deputies will vote on debt-reduction measures today in an attempt to shore up investor confidence and pave the way for Prime Minister Silvio Berlusconi’s resignation.

The ballot follows yesterday’s Senate approval of the measures that were promised to the European Union to boost growth and cut Italy’s 1.9 trillion-euro ($2.6 trillion) debt, the world’s fourth-biggest. Berlusconi will resign once the plan receives final approval from parliament’s lower house, President Giorgio Napolitano said Nov. 8. The Chamber concluded debate on the bill and will reconvene at 4 p.m. in Rome to vote.

The package’s final adoption would be “a major step in the right direction, containing the measures to put Italy back on track and, when implemented, to start regaining the necessary credibility,” EU President Herman Van Rompuy said in a speech yesterday outside Florence, Italy. “Implementation is absolutely crucial.”

Voting was moved forward after Berlusconi’s parliamentary majority unraveled this week, causing Italian bond yields to surge to euro-era records. The premier’s departure may lead to the formation of a new government led by Mario Monti, former EU competition commissioner, with broad support in the legislature.

‘Extremely Competent’

Monti enjoys the support of much of the opposition to Berlusconi, and Napolitano’s decision to push for a Monti government has been praised by leaders outside Italy. International Monetary Fund Managing Director Christine Lagarde called Monti “extremely competent” in remarks in Tokyo today. European Central Bank President Mario Draghi met with Monti this morning in Rome, before having lunch with Berlusconi at Palazzo Chigi, the government’s headquarters.

While backing for Monti has mounted, there are signs that a growing number of Berlusconi’s allies, including his coalition party the Northern League, are pushing the premier to resist. Monti must win confidence votes in both houses of parliament, and Berlusconi still has a majority in the Senate, allowing him to block Monti’s confirmation should he be able to keep his forces together.

Monti risks going into the vote “as the Pope and coming out a cardinal,” Defense Secretary Ignazio La Russa said yesterday, referring to an Italian saying that alludes to cardinals seen as pontiff front-runners being skipped over in the selection process.

Resignation Offer

The yield on Italy’s 10-year bond declined for a second day yesterday, falling 43 basis points to 6.45 percent and narrowing the difference with German bunds to 456 basis points. The 10- year yield surged on Nov. 8 across the 7 percent threshold that prompted Greece, Portugal and Ireland to seek bailouts, as Berlusconi’s government unwound. The FTSE MIB index gained 3.7 percent, the biggest advance of any European benchmark.

Berlusconi, 75, offered to resign on Nov. 8 once the budget measures were approved. He came under pressure to step down after defections in his party left him without a majority in the lower house.

Napolitano will steer talks with political parties to try to muster support for a new government or call early elections. Opposition parties have indicated they would back a Monti government and Napolitano may complete the talks tomorrow and immediately offer the position to the former EU commissioner. Any new government formed through negotiations could not serve beyond the end of the current legislative term in April 2013.

Technical Governments

Italy has a tradition at times of political crisis to reach outside of parliament for leadership to form a so-called technical government. 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 was then confirmed by the opposition when it came to power after Berlusconi’s first government collapsed.

“Monti is clearly in favor of quick implementation of labor-market reforms,” which “should help boost Italy’s productivity and potential growth,” Annalisa Piazza, an economist at Newedge Group in London, said in an e-mailed note yesterday. He also backs a more efficient tax system that could reduce company and labor-market levies and increase the value- added tax, Piazza said.

Austerity Plans

The austerity measures that the Chamber will vote on 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 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 undo his majority and fuel the selloff of Italian debt.

“If they manage to get their problems under control the situation could stabilize,” said Heinrich Bayer, an economist at Deutsche Postbank in Bonn. “Italy has the potential to weather the turmoil but they’ve already wasted a lot of time. They need to act now.”

The country’s deficit of 4.6 percent of gross domestic product 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 more than a decade has unnerved investors shunning Europe’s riskiest assets.

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 Nov. 10 that Italy won’t make good on its pledge to balance the budget in 2013 and will end that year with a deficit of 1.2 percent of GDP.

To contact the reporters on this story: Alessandra Migliaccio in Rome at amigliaccio@bloomberg.net; Lorenzo Totaro in Rome at ltotaro@bloomberg.net.

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Angela Cullen at acullen8@bloomberg.net.