Berlusconi Says He May End Support for Monti’s Government

Former Italian Prime Minister Silvio Berlusconi said his party, the biggest in parliament, may end support for Premier Mario Monti’s government because its policies are deepening the country’s recession.

The People of Liberty party needs to consider that “with a no-confidence vote by us, we would determine a situation that would be interpreted in a certain way by the financial markets and would cause early elections,” Berlusconi told reporters yesterday near Milan. “We will consider these facts and decide whether to immediately withdraw our support of the government.”

Such a step would likely force President Giorgio Napolitano to call early elections, before a vote due by May. It also would probably fan Europe’s debt crisis, as Monti’s austerity policies have contributed to a decline in Italy’s bond yields, with markets more focused on Spain in recent months.

“It’s impossible to say what is in Berlusconi’s head now, but if he decides to end his support to Monti, early elections become almost inevitable,” said Roberto D’Alimonte, a professor of politics at Rome’s LUISS University. “Berlusconi would lose the elections anyway, but would likely get more votes thanks to an anti-austerity platform and that would increase his party’s bargaining power in the next parliament.”

Monti Austerity

Monti, 69, was appointed prime minister last November after Berlusconi, 76, resigned and within weeks passed 20 billion euros ($25.9 billion) in austerity measures, overhauled the pension system and embarked on changing labor-market rules in the euro region’s third-biggest economy. The former European commissioner’s government is supported in parliament by both Berlusconi’s party and the Democratic Party.

Elisabetta Olivi, a spokeswoman for Monti, declined to comment yesterday when asked about Berlusconi’s remarks.

Monti’s initiatives have deepened Italy’s fourth recession since 2001 and helped former comedian Beppe Grillo’s opposition 5 Star Movement emerge in opinion polls as the country’s second- biggest political force. Since June, the total support for parties backing Monti has fallen in most polls below 50 percent. Those parties hold more than two-thirds of the seats in both chambers of the parliament elected in 2008.

During Monti’s tenure, the 10-year yield has dropped more than 200 basis points to 4.903 percent on Oct. 26. The decline of Italian debt-financing costs sped up after European Central Bank President Mario Draghi vowed in July to do what’s needed to preserve the euro and then in September announced a bond-buying program for countries facing financing stress.

Investor Uncertainty

“Berlusconi’s remarks increase investors’ uncertainty on the duration of the government’s life, and this will likely become tangible when markets re-open,” D’Alimonte said.

Monti is still implementing some steps aimed at containing debt and keeping the deficit under 3 percent of gross domestic product this year. Italy entered a recession in the fourth quarter of 2011 as the global slowdown aggravated the effects of waning productivity and Monti’s mix of tax increases and public spending cuts.

GDP declined 0.8 percent in the second quarter amid the biggest drop in household spending in almost two decades and unemployment topping 10 percent. Debt rose to 1.982 trillion euros in the second quarter, or 126.1 percent of GDP, the European Union’s statistic institute Eurostat said Oct. 24. That makes it the biggest debt load in the euro region after Greece.

Shrinking Economy

Italy will contract 2.4 percent in 2012 and 0.2 percent in 2013, the government said Sept. 20. The International Monetary Fund predicted last week in its World Economic Outlook that the economy will shrink 2.4 percent this year and 0.7 percent next.

Still, industrial output unexpectedly rose in August, signaling the recession may be easing, and consumer confidence gained this month as the government announced tax cuts for the lowest earners to offset the effect of an increase on the value- added levy in 2012. The measure, part of a budget plan approved by the Cabinet on Oct. 10, must be approved by the parliament before becoming law.

“Berlusconi’s words need always to be double-checked,” Rosy Bindi, the deputy leader of the Democratic party in the lower house of parliament, told Sky TG24 television. “I don’t know if Berlusconi sent Monti packing. For sure, he repudiated the support he has given Monti and his policies in the last few months.”

Monti has said he won’t compete in the coming national elections. Still, the former university president and Goldman Sachs Group Inc. adviser has said he would be available to serve as premier again after the vote.

Tax Fraud

An Oct. 19 SWG Institute poll of national voting preferences had Grillo surpassing 20 percent, second only to the Democratic Party with 25.5 percent and ahead of Berlusconi’s PDL at 15 percent.

Berlusconi reiterated yesterday that he won’t seek the premiership again, although he plans to stay in politics, after a court in Milan found him guilty of tax fraud in a television- rights trial. The media tycoon-turned-politician was sentenced Oct. 26 to four years in prison and banned from public office for five years in the case involving his company Mediaset SpA. (MS)

He probably won’t serve any jail time because of his age and the Italian appeals process, which can run out the statute of limitations. The court pardoned three years of the sentence.

Berlusconi said yesterday that the political movement he founded in 1994 should hold primaries in December to pick its candidate for the premiership. He stepped down from his post after losing his parliamentary majority amid his legal woes and as the Italian benchmark 10-year bond yield topped 7 percent.

Prostitution Charge

Berlusconi is also being tried in a Milan court on charges of abuse of power and engaging a minor in prostitution. He told judges on Oct. 19 that he never had sex with the woman at the center of the charges, Karima El Mahroug. He also said he “never put pressure on members of the Milan police force” to let her go. El Mahroug, a Moroccan who danced in nightclubs under the stage name Ruby Heart Stealer, says she attended at least one party at Berlusconi’s mansion near Milan in February 2010, when she was 17.

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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