Monti Defends Policy; Germany Fears Bunga-Bunga Backslide

Prime Minister Mario Monti warned of the dangers of dismantling his economic reforms after Silvio Berlusconi said the government’s “German-centric” policies have left Italy in worse shape than when he ceded power.

“Reforms need time for their effects to unfold while the costs are felt immediately,” Monti said today in a speech in Rome, a day after Berlusconi’s remarks. “Interrupting the reforms is worse than not doing them at all.”

Berlusconi is stepping up his criticism of Monti and German-led austerity after withdrawing his support for the government he backed for more than a year. Apart from blaming Germany for Italy and Europe’s economic woes, he called the focus on the gap between German and Italian borrowing costs “a scam” that wasn’t important.

“There is the danger of a backslide to bunga bunga; Italy needs more reforms,” Rainer Bruederle, parliamentary leader of Chancellor Angela Merkel’s Free Democratic Party coalition partner, told reporters in Berlin today.

Bruederle was referring to the parties Berlusconi threw with young woman that are at the center of criminal charges against him for engaging a minor in prostitution.

Monti raised taxes and cut spending in a bid to bring the budget deficit within the European Union limit this year and stop the increase in the euro region’s second-biggest debt. He also overhauled pension and labor rules, prompting a popular backlash. While his policies left Italy with one of the lowest deficits in the region, they deepened the country’s fourth recession since 2001.

Meeting Merkel

Italy’s 10-year bond yield fell 5 basis points to 4.67 percent, taking back some of the 29-point advance on Dec. 10, the first day of trading after Monti announced he planned to step down when Berlusconi’s forces deserted.

Berlusconi may have the chance to defend his remarks to Merkel tomorrow; he may attend a meeting of the European People’s Party in Brussels, newspaper Libero reported. An EPP spokeswoman wasn’t sure whether Berlusconi would attend.

Berlusconi’s arrival in Brussels would cast a shadow over Monti’s participation in what will probably be his last summit of EU leaders, which also begins tomorrow.

Monti intends to resign as soon as next week when Parliament passes his 2013 budget plan. He announced he would step aside after Berlusconi’s People of Liberty party withdrew its support when the former three-time premier said he would run again. Once Monti resigns, Parliament will be dissolved, with elections held as soon as February.

Rome Event

Berlusconi, 76, will probably reveal more of his plans for his sixth bid for the premiership when he speaks at a book presentation in Rome today at 5:45 p.m.

His decision to run, which came less than a month after he said he was stepping back from politics, upended his party, known as the PDL in Italian, and forced it to cancel a primary campaign that was under way to choose its candidate for the election. His return has not only riled Monti backers and Germany; he’s also strained relations with his own allies.

Several PDL lawmakers, including former Foreign Minister Franco Frattini, backed the current government in a Dec. 6 confidence vote, defying the party leaders who called for abstaining after announcing their break with Monti.

Berlusconi has also run into resistance in his efforts to rebuild ties with his former coalition ally the Northern League, without which he stands little chance of being competitive in the election.

Northern League leader Roberto Maroni told Berlusconi yesterday that the party wouldn’t back him if he went ahead with plans to run again, a person familiar with the conversation said in an interview.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE