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Letta Breaks Berlusconi Grip on Power Before Ouster Fight

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Oct. 3 (Bloomberg) -- Prime Minister Enrico Letta broke Silvio Berlusconi’s grip on power in Italy just when the billionaire ex-premier needed it most.

Berlusconi’s base is wobbling for the first time since 2010 as his fate in elected office hangs in the balance. His party splintered yesterday over a confidence vote called by Letta. A hearing tomorrow may be Berlusconi’s last chance to convince a parliamentary committee to call off proceedings to expel him from the Senate in the wake of a tax-fraud conviction.

“This is the blackest point in his political history because he has lost control,” said Francesco Galietti, founder of Rome-based research firm Policy Sonar. “His party is abandoning him right now.”

The showdown with Letta exposed divisions in the political enterprise Berlusconi built over the last two decades. People of Liberty, weakened by a third-place finish in February elections, nearly split up yesterday when senior members defied Berlusconi’s orders and guaranteed the survival of Letta’s government.

The five-month-old coalition won support from 235 of the Senate’s 321 lawmakers. Deputy Prime Minister Angelino Alfano and Transport Minister Maurizio Lupi led a group of PDL dissidents whose endorsement of the government on Oct. 1 forced Berlusconi, 77, to back down. Just before the vote, Berlusconi stood in the Senate and recanted his push against Letta. Letta subsequently won in the lower house.

“We decided, not without an internal struggle, to vote the confidence of this government,” Berlusconi said.

Market Reaction

Stocks and bonds were little changed today after rising yesterday as the threat from Berlusconi abated. The benchmark FTSE MIB index fell 0.2 percent as of 2:15 p.m. in Rome. Ten-year note yields rose 2 basis points to 4.39 percent.

A public hearing of the Rome-based Senate’s committee for immunity and elections is scheduled for 9:30 a.m. tomorrow to allow Berlusconi a forum to present his defense after a definitive conviction for tax fraud in August.

The panel will then have to vote whether to strip him of his senator seat, before the matter is put before the full Senate for a final decision.

The PDL’s disarray weakens Berlusconi’s defense against expulsion, which requires a Senate vote to become effective, and undermines his influence in policymaking. Berlusconi extracted a property-tax cut over the initial objections of Finance Minister Fabrizio Saccomanni in August by threatening to withdraw his group from Letta’s three-party administration.

‘Greatly Weakened’

“Berlusconi is now greatly weakened,” Wolfango Piccoli, an analyst with Teneo Intelligence in London, said in a research note. “With the judicial noose tightening around him, he is set to lose his parliamentary seat in the near future.”

Berlusconi is subject to expulsion proceedings because his conviction for tax fraud, upheld in August by Italy’s Supreme Court, runs afoul of an anti-corruption law. If the committee recommends his ouster, the matter will be decided by a vote in the full Senate, which could come within weeks.

The shifting alliances that were Berlusconi’s undoing yesterday recalled two other key government challenges that he won in the last six years. In 2008, he brought down Romano Prodi by convincing senators to withdraw their support. In October 2010, then-Prime Minister Berlusconi staved off an attempt by one-time ally Gianfranco Fini to undermine him.

Berlusconi’s Attack

Berlusconi opened his attack on Letta’s government on Sept. 26, when PDL lawmakers met behind closed doors and discussed a mass resignation to protest the Senate proceedings. He escalated the effort two days later by calling on Alfano and the PDL’s four other ministers to leave the cabinet. While that request was initially obeyed, Letta thwarted Berlusconi on the day before the vote by convincing the ministers to return.

The setback leaves the strength of Berlusconi’s leadership in question. He has counted on his charisma and the loyalty of allies for each comeback since his first government ended in 1994, less than a year after it started. That devotion was still on display yesterday among some rank-and-file PDL members, like Senator Alessandra Mussolini, who disparagingly compared Alfano to Fini.

“Enough with Alfini,” Mussolini, the granddaughter of fascist dictator Benito Mussolini, said to reporters. “There is only Berlusconi for me. I don’t even recognize Alfini. I don’t know who he is.”

Still, others were more qualified in their praise. Senator Maurizio Sacconi called Berlusconi the “noble father” of his political group, while saying Alfano gained strength in the confrontation. Andrea Augello, who said before the vote that he was ready to start a new group with the dissidents, said he would accept Berlusconi’s leadership without question.

“Berlusconi is still my leader,” said Lupi.

To contact the reporter on this story: Andrew Frye in Rome at

To contact the editor responsible for this story: James Hertling at