Berlusconi Faces Vote on Ally’s Arrest as Employers Urge His Resignation

Italy’s Parliament rejected a request to authorize the arrest of a former aide to Finance Minister Giulio Tremonti, in a show of unity of Prime Minister Silvio Berlusconi’s government amid Europe’s debt crisis.

The Chamber of Deputies voted against the request by prosecutors to arrest Marco Milanese, a ruling-party lawmaker accused of corruption. The 630-seat lower house voted 312 to 306 against the arrest of Milanese. Seven members of the governing coalition defied the premier and voted with the opposition in the secret ballot, according to Italian news agency Ansa.

Pressure is mounting on Berlusconi after Standard & Poor’s cut Italy’s credit rating one level this week, citing his “fragile” government and weak economic growth. A defendant in four trials, Berlusconi now faces calls from Italian employers, long-time backers, to step down as the nation’s bonds succumb to contagion from the debt crisis.

On Sept. 14, Berlusconi survived a confidence vote in the lower house on his 54 billion-euro ($74 billion) austerity plan, which aims to balance the budget in 2013, by a margin of 14 votes. The government had approved the package in exchange for the European Central Bank buying Italian bonds after yields soared to a record on concern about the fallout from a possible Greece default.

Record Yields

Even as the Frankfurt-based central bank continued to buy the securities this week, the yield on Italy’s 10-year bond was at 5.7 percent as of 5:20 p.m. in Rome, as the spread with German bunds narrowed to 396 basis points from yesterday’s record close of 398.

While Berlusconi’s People of Freedom Party opposed Milanese’s arrest, today’s vote showed that the Northern League, his coalition ally, was not willing to break with the premier. League leader Umberto Bossi and Berlusconi agreed yesterday that the premier should stay in office at least until January, la Repubblica newspaper reported today, citing a conversation between the two politicians.

The Chamber of Deputies on July 20 had allowed the arrest of another member of Berlusconi’s party, former judge Alfonso Papa, who faces charges of influence-peddling and revealing state secrets.

The Milanese case has forced Tremonti to explain his ties with the man who served as his top political adviser until June 26. Milanese denies any wrongdoing. Tremonti, who is also a member of the Chamber of Deputies, didn’t take part in the vote. He will attend the annual meetings of the International Monetary Fund starting tomorrow in Washington.

In a July 7 statement, Tremonti said he was moving out of a Rome apartment provided by Milanese. In a letter published on July 29 in daily Corriere della Sera, the minister acknowledged he had made “mistakes” while denying any “unlawful acts” related to use of the apartment.

Popularity Plunge

The premier’s legal woes have contributed to a fall in voter approval and confidence in the government, according to polls. Berlusconi, 74, faces charges including corruption and paying a minor for sex, and a possible indictment in a fifth case may come as soon as today for allegedly leaking wiretapped phone conversations to discredit a political rival. He denies wrongdoing and says prosecutors seek to destroy him politically.

Berlusconi’s popularity fell to a record low this month as he pushed through the austerity measures amid the rout in Italian bonds, according to a Sept. 15 poll by Rome-based IPR Marketing. The survey also showed his ruling coalition would lose power if elections were held today.

Following the S&P downgrade, Italy’s first in five years, the head of the nation’s employers lobby piled on the pressure. “Either the government is able within a week to pass serious, bold and unpopular reforms” or it “should go home,” Confindustria President Emma Marcegaglia said in a Sept. 20 speech in Bologna.

Call to Resign

That message was amplified the next day in a front-page editorial in Il Sole 24 Ore, Italy’s leading financial newspaper that is controlled by Confindustria, which along with much of the business community has supported Berlusconi since he entered politics in 1994. Roberto Napoletano, the daily’s editor-in- chief, demanded the premier’s resignation.

“The country most at risk now after Greece is Italy and this is due to the fragility of your governing coalition, the chain of embarrassing scandals that have directly touched you, your ministers and your closest collaborators, and the consistent incapacity to make painful, but necessary decisions,” Napoletano wrote.

Italy has had average annual economic growth of 0.9 percent since Berlusconi was elected to the first of his three terms in 1994, compared with 1.6 percent for the euro region. The International Monetary Fund on Sept. 20 cut its forecast for Italian growth this year and next, and said the government will also miss its goal of erasing the budget deficit in 2013.

-- With assistance from Sonia Sirletti in Milan and Chiara Vasarri in Rome. Editors: Jeffrey Donovan, Dan Liefgreen

To contact the reporter on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net.

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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