Berlusconi to Resign After Austerity Passes
Prime Minister Silvio Berlusconi offered to resign as soon as Parliament approves austerity measures pledged to European partners, after defections from his ruling party left him without a majority and bond yields surged to euro-era records.
“Once that task has been achieved, the prime minister will tender his resignation to the president,” who will then begin consultations with all political parties, President Giorgio Napolitano said tonight in an e-mailed statement after meeting Berlusconi in Rome.
The government has yet to present the final text of the amendment to the budget law with the austerity measures. The Senate was set to vote on the law next week, Senator Massimo Garavaglia told Ansa newswire tonight. The Chamber of Deputies would begin debate after the Senate’s approval. Napolitano gave no indication if the timing of the votes would be moved up.
Berlusconi’s resignation came after he failed to muster an absolute majority on a routine parliamentary ballot, obtaining only 308 votes in the 630-seat Chamber of Deputies today. U.S. stocks rose for a second day and the euro strengthened after Napolitano’s announcement, bolstering optimism a new leader will better be able to tame the euro-region’s second-biggest debt.
The Standard & Poor’s 500 Index climbed 1 percent in New York after slipping as much as 0.5 percent earlier. The euro appreciated 0.5 percent to $1.3838 as the shared currency climbed against 10 of 16 major peers. The S&P GSCI Index of commodities rose 0.8 percent to a two-month high as oil traded at the highest price since August.
The yield on Italy’s benchmark 10-year bond jumped 11 basis points today to 6.77 percent today before the announcement, the most since the euro’s introduction in 1999 and near the 7 percent level that drove Greece, Ireland and Portugal to seek international bailouts. The extra premium investors demand to hold the debt instead of German bunds widened to a record 497 basis points, the highest close in the euro ear.
The premier resigning will probably bring “a short rally in stock markets and the ‘Berlusconi political-risk premium’ embedded in Italian yields, which we calculate at 1 percent, will likely disappear,” Jan Randolph, head of sovereign risk at HIS Global Insight in London, said in a note. “But Italy won’t be out of the heat of bond markets until a solid and stable government actually implements austerity measures and undertakes reforms with credible leadership.”
Berlusconi, speaking to state-run RAI television after his talks with the president, said he expects Napolitano to call early elections after consulting party leaders, “I don’t think there are other feasible solutions,” he said. “It’s unfathomable that those who lost the elections can govern.”
Elections may take two months to organize and could further delay implementation of the measures that aim to balance the budget in 2013 and cut a debt of 1.9 trillion euros ($2.6 trillion), bigger than that of Greece, Spain, Portugal and Ireland combined. The EU stepped up pressure on Italy to implement the plan today even as Berlusconi’s government was unraveling.
“The economic and financial situation in Italy is very worrying,” EU Economic and Monetary Commissioner Olli Rehn told reporters after a meeting of euro-area finance ministers today in Brussels. Rehn said he sent Finance Minister Giulio Tremonti about 40 “very specific questions” on Italy’s economic pledges and expects answers by the end of the week.
The EU said Italy will probably need to carry out additional austerity to meet the balanced budget goal given the “current economic context,” la Repubblica newspaper said, citing a copy of the letter. The EU also called on Italy to provide more details about the timing and implementation of the measures Parliament is set to pass.
The measures stem from a 45.5 billion-euro austerity package initially passed by Parliament in September that helped convince the European Central Bank to buy Italian bonds to try to contain surging borrowing costs as the failure to shore up Greece led the debt crisis to spread.
In a bid to shore up confidence in Italy, Berlusconi presented a timetable for implementing some of the measures to EU leaders at a summit this month and is now converting that plan into law. The amendment including the measures will be included a plan to accelerate asset sales of as much as 60 billion euros, liberalize closed professions and local services and boost infrastructure investment, newspapers including Il Sole 24 Ore newspaper reported on Nov. 3.
Napolitano will now seek to determine whether there’s support in the legislature to form another government with a broad enough majority to govern. Napolitano could also try to build support for a so-called technical government led by a prominent figure charged with implementing the economic overhaul and eventually preparing the country for new elections.
Former EU Competition Commissioner Mario Monti would be a candidate to lead such a government with backing from the main opposition parties as well as many members of the premier’s party, “who would support him only once” the government falls, Nomura International economist Lavinia Santovetti wrote in a note yesterday.
If Napolitano can’t forge a new government, elections would be called. By law, elections can be held between 45 days and 75 days after the president has dissolved Parliament and the act has been published in the government’s Official Gazette.
Most of the opposition parties have signaled they would support a broader coalition or a technical government in a country where elections often lead to unstable regimes that rarely endure a full five-year term. The country has averaged about one government a year since World War II.
“The key political point for Italy is now answering the following question: which government, with what wide majority, will be able to implement in a few days the structural reforms that we haven’t been able to implement in the last 10 years?” Mario Baldassarri, chairman of the Senate Finance Committee, said in an interview tonight. “We need to give the ECB a reason to continue to buy, which is to prepare the needed reforms and then, if it’s useful, the ECB can help.” Umberto Bossi, the leader of the Northern League party that had sustained Berlusconi in power, said today that Angelino Alfano, the leader of Berlusconi’s People of Liberty party, should take over as premier, Ansa said. Senator Giuseppe Pisanu, a PDL member, said Undersecretary Gianni Letta, a top Berlusconi aide, should succeed him as prime minister.
“Berlusconi’s strategy will be to try to pave the way for one of his closest associates to be appointed prime minister,” Riccardo Barbieri, chief European economist at Mizuho International Plc, told Maryam Nemazee on Bloomberg Television’s “The Pulse” today. “I don’t think he will find the necessary support in the Parliament at which point the only viable solution would be a technocratic government.”