Letta Aide Sees Berlusconi’s Challenge Undermined

Photographer: Alessia Pierdomenico/Bloomberg

The survival of Italian Prime Minister Enrico Letta's premiership depends on his ability to forge unity from a fragmented Italian parliament for a second time this year. Close

The survival of Italian Prime Minister Enrico Letta's premiership depends on his... Read More

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Photographer: Alessia Pierdomenico/Bloomberg

The survival of Italian Prime Minister Enrico Letta's premiership depends on his ability to forge unity from a fragmented Italian parliament for a second time this year.

Italian Prime Minister Enrico Letta’s deputy finance chief expressed confidence in overcoming Silvio Berlusconi’s challenge, saying the former premier’s faction in parliament is splintering.

“In Berlusconi’s party, there are a number of parliament members responsible enough to understand the serious consequences of a crisis,” Deputy Finance Minister Stefano Fassina said today in an interview with Francine Lacqua on Bloomberg Television. “We are confident that we will have the strength for continuing with Letta’s government.”

Letta said last night that he’ll seek backing from the Parliament in Rome this week to try to save his five-month-old administration after Berlusconi, a partner in the ruling coalition, withdrew his support. Underscoring how fluid the situation is, Letta won’t make a decision on calling a confidence vote until after an Oct. 2 debate in the lower house, newswire Radiocor reported today, citing no one.

A report by Reuters that as many as 20 senators of Berlusconi’s People of Liberty, or PDL, are ready to form a breakaway group if the ex-premier doesn’t back down on his confrontation with Letta was denied by Deborah Bergamini, a member of the lower house from the party. “I don’t have evidence of any defections,” she said in a phone interview.

Photographer: Alessia Pierdomenico/Bloomberg

Political turmoil has plagued Italy, the world’s third-biggest debtor after the U.S. and Japan, throughout the euro financial crisis. Close

Political turmoil has plagued Italy, the world’s third-biggest debtor after the U.S.... Read More

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Photographer: Alessia Pierdomenico/Bloomberg

Political turmoil has plagued Italy, the world’s third-biggest debtor after the U.S. and Japan, throughout the euro financial crisis.

The rift between Letta and Berlusconi, a three-time prime minister, has rattled the financial markets. Italian bonds declined for a third day, pushing the 10-year yield up 3 basis points to 4.45 percent at 3:30 p.m. in Rome today. That increased the difference with German bunds to 266 basis points. The country’s benchmark FTSE MIB Index fell 1.6 percent.

’High’ Volatility

The end of the Letta-Berlusconi partnership “should keep volatility on the Italian government securities market high,” Fabio Fois, an analyst with Barclays Plc (BARC), said in a research report.

Adding to the turmoil in Italy’s establishment, Intesa Sanpaolo SpA (ISP), the country’s second-biggest bank, said yesterday that its chief executive officer resigned. Milan-based Telecom Italia SpA (TIT) Chief Executive Officer Franco Bernabe also plans to tender his resignation this week after losing the support of the company’s biggest shareholders, a person with knowledge of the matter said last week.

Berlusconi, the 77-year-old billionaire whose legal troubles have him facing expulsion proceedings in the Italian Senate, announced his ministers’ withdrawal on Sept. 28, when markets were closed.

Letta needs 24 votes in the Senate to secure a new majority without Berlusconi, Corriere Della Sera reported. To do so, the 47-year-old premier must win over opposition lawmakers or convince members of the PDL to abandon their leader.

No ’Slim Majority’

Letta’s plan to appeal to lawmakers won an endorsement yesterday from President Giorgio Napolitano, who is responsible for calling snap elections if parliament is deadlocked. Napolitano, 88, said dissolving parliament is the option of last resort, Ansa reported, citing the president in Naples.

“We don’t want to go on with a very slim majority,” Fassina, a member of Letta’s Democratic Party, said in the interview. He added that he expects the government to have the backing of a “majority strong enough to keep going with reforms.”

PDL lawmakers will be Letta’s main target audience.

“In the end it’s all up to the PDL,” Letta said late yesterday in an interview televised on state broadcaster RAI. “I think there’s a deep debate taking place within the PDL.”

Italian Turmoil

Political turmoil has plagued Italy, the world’s third-biggest debtor after the U.S. and Japan, throughout the euro financial crisis. Berlusconi, forced out in 2011, brought down his successor, Mario Monti, in December 2012. Parliament, elected in February, has been incapable of enacting an economic program to pull Italy from its two-year recession.

“There is scope for Italy to endure a repeat of the intense financial turmoil that occurred in late 2011,” Raj Badiani, principal IHS Global Insight economist for Italy, said in a research report. “A major difference this time is the conditional ECB bond-buying plan.”

Berlusconi’s call to exit the government was heeded by Deputy Prime Minister Angelino Alfano, who said Sept. 28 that all five ministers from the PDL were stepping down. Letta’s office confirmed today that the resignations of Alfano, Health Minister Beatrice Lorenzin, Constitutional Reforms Minister Gaetano Quagliariello, Agriculture Minister Nunzia De Girolamo and Transport Minister Maurizio Lupi were “irrevocable,” according to a statement.

Letta’s Options

The survival of Letta’s premiership depends on his ability to forge unity from a fragmented Italian parliament for a second time this year. Letta ended nearly two months of gridlock in April by convincing his Democratic Party, the biggest force in parliament, to embrace an alliance with the PDL. He may be forced to focus on PDL defectors as Beppe Grillo’s Five Star Movement, the biggest opposition party, has refused to ally itself with other parties.

“A return to the polls in the short run is not a foregone conclusion,” Wolfango Piccoli, an analyst at Teneo Intelligence in London, said yesterday in a research report. “The situation is very fluid and prone to further surprises, especially as the next crucial phase will take place in parliament.”

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: James Hertling at jhertling@bloomberg.net; Craig Stirling at cstirling1@bloomberg.net

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