Berlusconi Party Rift Hurts Popularity as Cuts Loom

Prime Minister Silvio Berlusconi’s rift with his party’s co-founder Gianfranco Fini is hurting his popularity as the government prepares budget cuts to prevent the Greek crisis from spreading to Italy.

Confidence in Berlusconi declined to 41 percent in May, the lowest since he won his third election in 2008, from 43 percent the previous month, an IPR Marketing poll of 1,000 Italians published yesterday showed. Fini and Berlusconi clashed at a nationally televised party meeting last month.

“Italians perceive that Berlusconi isn’t the commander-in- chief he once was,” Antonio Noto, managing director of IPR, said in an interview.

Berlusconi’s allies have raised the possibility of early elections as a way of getting rid of Fini, who founded the People of Liberty party with the premier in 2008. The dip in Berlusconi’s popularity comes as the government prepares for at least 25 billion euros ($31 billion) of deficit cuts by 2012 aimed at convincing investors it can trim the region’s largest debt and prevent further declines of its bonds caused by the fallout from the Greek bailout.

The 73-year-old premier, whose family’s net worth is estimated by Fortune Magazine at $9 billion, has three years left in his term. Berlusconi, Italy’s biggest media owner, has named no heir, and Fini, 58, is a possible successor. The split between the two leaders intensified last month when Fini created a splinter group to challenge Berlusconi’s dominance of party policy.

‘Undermine and Sabotage’

Fini can “undermine and sabotage” the government, said Roberto D’Alimonte, a professor of politics at the University of Florence. It would be unwise to seek a vote now because “Italy’s Treasury has to sell tons of bonds every week,” D’Alimonte said.

Italy’s debt, the world’s fourth biggest, remains under investor scrutiny even though the yield spread against the German bund is narrower than Spain and Portugal because Finance Minister Giulio Tremonti kept a lid on spending during the recession, leaving the country with a deficit smaller than France’s. Italy’s 1.76 trillion-euro debt trails only that of the U.S., Japan and Germany.

Moody’s Investors Service said on May 7 that Italy isn’t among nations most at risk from Europe’s debt crisis, though the rating company said the country requires “decisive” debt reduction.

‘Political Crisis’

The extra interest that investors demand to hold Italian 10-year bonds over their German equivalents, the European Union’s benchmark government securities, rose to 106 basis points yesterday, up from 103.6 basis points May 17.

The threat of contagion from Greece’s sovereign-debt crisis may mean that a vote can’t be held before next year, said Maurizio Pessato, chief executive officer of SWG Srl polling company in Trieste, Italy.

“If there’s a political crisis now, and no one knows who will win or whether they will produce a solid majority, then the markets will lose confidence in Italy,” Pessato said.

The root of the current political tension is about who will succeed Berlusconi, said Francesco Perfetti, a politics professor at Rome’s Luiss University. “A rational person might say the current economic situation rules out early elections. But Berlusconi doesn’t want Fini undermining him for three more years, so an early vote is a rather likely outcome.”

‘Monarchy’

The legislature is scheduled to end in 2013.

Berlusconi’s dispute with Fini has simmered since last year. The prime minister “confuses leadership with absolute monarchy,” Fini said in November in comments captured by an open microphone as he spoke privately at a conference.

The conflict came to a head during a nationally broadcast party meeting on April 22. After Fini criticized the premier for passing laws to resolve his own legal woes and for conceding too much on policy to the anti-immigration Northern League, a coalition partner, Berlusconi shouted from the podium that the house speaker should resign.

“What are you going to do, fire me?” Fini replied.

The next day, League leader Umberto Bossi said that the government was facing “collapse” and Italy would likely go to early polls. Bossi later backpedaled, rejecting an early vote.

“It’s irresponsible to talk about early elections,” Fini said on April 25. “We’d run the risk of ending up in the same situation as Greece.”

President

Berlusconi might be tempted to seek an early election to take advantage of a fragmented opposition and to improve his chances of succeeding Giorgio Napolitano as president, D’Alimonte said. The president of the Republic is the country’s highest office. While the president’s powers are limited, he calls elections and chooses prime ministers. The position would allow Berlusconi to pick his successor.

“Berlusconi thinks he can catch the opposition in a weak position and win, and then he’ll have another five years to position himself to become president of the Republic,” D’Alimonte said.

The prime minister has a strong electoral track record. Even when he loses, it’s not by much. Berlusconi has won three elections since entering politics in 1994, and lost twice. In 2006, he was defeated by Romano Prodi’s coalition by less than 25,000 ballots. In 1996, he lost only after the Northern League withdrew its support.

“Berlusconi loves elections, and he usually wins them,” said James Walston, a professor of international relations at Rome’s American University. “Everyone knows that.”

To contact the reporter on this story: Steve Scherer in Rome at scherer@bloomberg.net

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