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Letta Draws Closer to Deal to Form Government With Berlusconi

Enrico Letta is closing in on a deal that would install him as Italian prime minister, ending a two-month political impasse and bringing forces loyal to Silvio Berlusconi back to power.

Letta, 46, may report to President Giorgio Napolitano as soon as today to accept the mandate as premier and announce a Cabinet, said a person familiar with Letta’s reasoning who requested anonymity because the decision hasn’t been made. A confidence vote in parliament could come as soon as Monday, the person said.

Consensus has been building around Letta since Napolitano turned to him April 24 to break the gridlock that descended after inconclusive elections Feb. 24 and Feb. 25. Berlusconi, a three-time former premier, said he was pleased with alliance talks, while leaders within Letta’s own Democratic Party, or PD, have endorsed the effort. Even so, the list of Cabinet ministers and policy priorities are still under negotiation.

“Letta’s efforts to form a Cabinet may lead to political frictions,” Peter Ceretti, an analyst with Eurasia Group in New York, said yesterday in a report. “While the distances between the main political parties appear surmountable under pressure from Napolitano, coming to a final arrangement may still require some negotiating.”

Former Prime Minister Giuliano Amato may be given the position of economy minister, and deputy premier may go to Angelino Alfano, general secretary of Berlusconi’s People of Liberty Party, or former Senate Speaker Renato Schifani, Corriere Della Sera reported yesterday. The Foreign Ministry may be given to former Premier Massimo D’Alema or Mario Monti, the outgoing prime minister, La Repubblica newspaper reported.

Berlusconi’s Future

Berlusconi, the 76-year-old billionaire who was forced out in November 2011 as the European financial crisis roiled Italian markets, said that he probably won’t serve as a minister. In an interview posted on the website of Mediaset SpA (MS), the broadcaster he controls, Berlusconi said negotiations have been constructive.

“It didn’t seem to me that there were real problems on the program,” Berlusconi said.

Investors took the impasse in stride, sending Italian borrowing costs down the past two months. The two-year note yield reached a record low this week and closed yesterday at 1.29 percent, down from 1.67 percent when voters went to the polls.

The gulf between the PD and People of Liberty, or PDL, has narrowed as Italy sinks deeper into recession and the country’s traditional political rivalries are upended by the emergence of Beppe Grillo’s Five Star Movement. Policy positions converged after Grillo won a quarter of the votes in the February voting; both the PD and PDL call for fiscal stimulus in bids to recover their constituencies after the austerity imposed during Monti’s tenure as premier.

Tax Promises

Berlusconi has promised to abolish a levy on primary residences, while the PD has pushed for easing the burden on lower-income families.

Letta needs an alliance to gain control of the Senate, which is split into three blocs represented by the PD, PDL and Five Star. The strategy to engage PDL marked a reversal for the PD, which initially shunned Berlusconi and pursued a deal with Grillo. That approach, under the PD’s former leader Pier Luigi Bersani, failed and nearly caused the party to breakup.

Florence Mayor Matteo Renzi, who lost to Bersani in last year’s PD primary, said Letta is the right person to oversee a partnership with Berlusconi. An eventual PD-PDL government will probably include Monti’s Civic Choice party, parliament’s fourth biggest force.

“Letta has all the elements to overcome all of the difficulties,” Renzi, 38, said in an interview televised on SkyTG24 yesterday. “It won’t be easy, because naturally there is anti-Berlusconi-ism, there have been strong words from the center-right about the left. But I think good sense will prevail.”

To contact the reporter on this story: Andrew Frye in Rome at afrye@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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