Italy’s Senate will vote on debt-reduction measures today in an attempt to shore up investor confidence and pave the way for a new government that may be led by former European Union Competition Commissioner Mario Monti.
The Senate will vote on a package of measures promised to the European Union aimed at boosting growth and cutting Italy’s debt of 1.9 trillion euros ($2.6 trillion), the world’s fourth biggest. Lawmakers rushed to pass the measures after Prime Minister Silvio Berlusconi’s parliamentary majority unraveled this week, leading bond yields to surge to euro-era records.
The upper house has started debating the measures, with a vote likely around 1:00 p.m. The Chamber of Deputies will give final approval tomorrow and Berlusconi will resign “a minute later,” Chamber Speaker Gianfranco Fini said. President Giorgio Napolitano was meeting with Monti in Rome before today’s ballot after making him a senator for life on Nov. 9, which granted him voting rights in the upper house.
The yield on Italy’s 10-year bond declined for a second day, shedding 31 basis points to 6.57 percent, narrowing the difference with German bunds to 483 basis points. The 10-year yield surged on Nov. 8 across the 7 percent threshold that prompted Greece, Portugal and Ireland to seek bailouts, as Berlusconi’s government unraveled.
The main obstacle to a Monti government would come from Berlusconi and his allies resisting the plan and pushing for early elections. Berlusconi still has a majority in the Senate.
“I still think that elections are the lesser of two evils,” Transport Minister Altero Matteoli told reporters in Rome today. “Others in the party have different opinions.”
Lawmakers from Berlusconi’s People of Liberty party will meet tomorrow to continue talks on their strategy, he said.
“The Monti government can only come to pass if Berlusconi acts responsibly and says yes to a unity government,” Fini said last night on Sky TG24.
Berlusconi offered to resign on Nov. 8 once the budget measures were approved. He came under pressure to step down after a series of defections left him without a majority in the Chamber of Deputies. Napolitano is charged with steering talks with political parties to muster support for a new government or call elections. Napolitano may complete the talks on Nov. 13 and immediately offer the position to Monti, newswire Ansa reported.
Italy has a tradition at times of political crisis to reach out to non-partisan leaders. Monti spent almost a decade in Brussels as EU commissioner and previously had broad backing in Italy. He was first appointed to the commission by Berlusconi in 1994 and was then confirmed by the opposition when it came to power after Berlusconi’s first government collapsed.
“Monti is by far the best candidate to lead a technocrat government, which is the only way out of Italy’s predicament,” James Walston, a professor of politics at the American University in Rome, wrote in an e-mailed message. The measures voted on today “will be a start, but then there will be difficult times, more cuts and greater hardships.”
The austerity measures before the Senate today include a pledge to raise 15 billion euros from real-estate sales over the next three years, a two-year increase in the retirement age to 67 by 2026, opening up closed professions within 12 months and a gradual reduction in government ownership of local services.
The budget measures were first pledged to EU allies at a summit on Oct. 26 and are aimed at convincing investors Italy can overhaul its economy to reduce borrowing. Months of squabbling within Berlusconi’s Cabinet over the plans helped unravel his majority and prompt the selloff of Italian debt.
“If they manage to get their problems under control the situation could stabilize,” said Heinrich Bayer, an economist at Deutsche Postbank in Bonn, Germany. “Italy has the potential to weather the turmoil but they’ve already wasted a lot of time. They need to act now.”
U.S. President Barack Obama spoke with Napolitano and “expressed confidence in President Napolitano’s leadership to put an interim government in place in Italy that will implement an aggressive reform program and restore market confidence,” White House press secretary Jay Carney said yesterday.
The EU has been stepping up the pressure on Italy to adopt the budget measures and has said the government’s economic forecasts are too optimistic. The European Commission said yesterday that Italy won’t make good on its pledge to balance the budget in 2013 and will finish that year with a deficit of 1.2 percent of gross domestic product. It also said that Italy’s recovery came to a standstill in the third quarter and the economy will probably contract in the final three months.
The country’s deficit of 4.6 percent of GDP last year was similar to Germany’s at 4.3 percent and less than that of the U.K. and France. Italy also has a surplus in its primary budget, which excludes debt interest payments.
Still, debt at almost 120 percent of GDP and economic growth that has trailed the EU average for over a decade has unnerved investors shunning Europe’s riskiest assets.
“It’s clear that only a comprehensive and wide-ranging package of reforms can kick-start Italian growth again,” EU Economic and Monetary Affairs Commissioner Olli Rehn said yesterday. “The first and foremost thing for Italy is to restore political stability and capacity of decision making” as well as “firm and determined action” on fiscal targets.