Italian Undecided Voters Targeted in Campaign’s Last Week

Italian voters are braced for an onslaught of tax-cut promises and attacks on the European Union as the four leading candidates take to the airwaves and criss-cross the country in the election campaign’s final days.

Italy goes to the polls Feb. 24-25 in the first parliamentary election since Europe’s sovereign debt crisis threw its political establishment into disarray. Still up for grabs is the 20 percent of voters that pollsters say decide in the final week. The risk is an inconclusive result that denies victory to any and leads to gridlock, requiring a second vote.

“The biggest issue is, is it going to be easy to form a government?” said Marc Ostwald, a rates strategist at Monument Securities Ltd. in London.

Silvio Berlusconi kicks off the week with a rally today in Milan, capital of the battleground region of Lombardy near the Alpine foothills. The billionaire former premier will repeat his pledge to hand out more than $5 billion in property-tax refunds as he seeks to build a blocking minority in the Senate. Berlusconi’s main rival, front-runner Pier Luigi Bersani, may appear on the other end of Italy in Cosenza, Calabria.

The duel between Bersani and Berlusconi, whose respective forces have dominated Italian politics since 1994, is muddied by the campaigns of Prime Minister Mario Monti, a professor-turned-politician at age 69, and comedian Beppe Grillo. Monti has sought to position himself as a kingmaker by courting both Bersani and the forces backing Berlusconi. Grillo has excluded alliances and embraced the role of spoiler.

Fourth Recession

Italians are being called to vote with the economy mired in its fourth recession since 2001, having contracted for six quarters through the final three months of last year. Italy’s 10-year government bond yield, which reached a euro-era record of 7.261 percent on Nov. 25, 2011, was at 4.411 percent at 2:30 p.m. Rome time.

The election outcome “remains highly uncertain,” Giada Giani, an economist at Citigroup Inc. in London, wrote in a research report last week. “Small moves in the votes can lead to large swings in the Senate seat allocation.”

The upper house of Italy’s parliament is where Bersani, a former communist and labor-union favorite, is most vulnerable as seats are doled out on a regional basis, rendering national popularity less meaningful. Bersani will probably need a post-vote alliance with Monti to secure a majority, a move that would please bond investors satisfied with the premier’s 15-month tenure, according to Citigroup and Eurasia Group.

Bersani Edge

Bersani had 33.8 percent support in an SWG Institute survey published Feb. 8, the day before Italy’s two-week polling blackout began. That compares with 27.8 percent for Berlusconi, 18.8 percent for Grillo and 13.4 percent for Monti. According to Italian election law, bonus seats are handed out in both the Senate and the Chamber of Deputies, allowing a party to secure a majority without winning 50 percent of the votes.

The two-monthlong campaign has developed into a competition over tax cuts, with Bersani, Berlusconi and Monti each distancing themselves by degrees from the austerity that defined their policies from November 2011 to December. Berlusconi’s proposals, including the tax refund and cuts to corporate levies, prompted Mediobanca SpA to tell clients today that a victory for the ex-premier may push Italy into a bailout.

“Paradoxically, the worst-case scenario could become the best case to us,” Antonio Guglielmi, an analyst at Mediobanca in London, said in a report. A Berlusconi victory “would scare the market sufficiently” to raise borrowing costs and force Italy to apply for a bailout with the European Central Bank, Guglielmi said.

Budget Monitoring

A bailout with ECB, which Italy sidestepped last year thanks in part to Monti’s tax increases, would require the country to submit to budget monitoring by Europe.

Berlusconi disowned his previous support for Monti’s budget rigor in December and reinvented himself as an anti-austerity crusader. Berlusconi and Bersani had formed a temporary alliance 15 months ago to bring Monti to power with a mandate to raise taxes and shield Italy from the European sovereign debt crisis.

That strategy, while successful in bringing down Italy’s borrowing costs, has hurt each of them with recession-scarred voters and provided momentum to Grillo’s self-described populist movement. Grillo, on a 73-stop tour of Italy, has filled town squares. Grillo says his goal is to get 100 of the 945 elected seats in parliament and topple the next government within eight months.

‘Game Changer’

“What could really be the game changer right now would be a really strong performance from Grillo,” said Peter Ceretti, a Eurasia Group analyst in New York. “He might take votes and seats from all of the forces across the board and make life a little more difficult for Monti and Bersani in the Senate.”

Berlusconi, 76, has repudiated his previous support for Monti and promised to force Germany to accept looser EU budget demands. Beyond the rebate, which he has vowed to deliver in cash, Berlusconi has said he will provide an amnesty to tax evaders and abolish a property levy on main residences that was the centerpiece of Monti’s austerity budget last year. Monti and Bersani have vowed to cut taxes while re-emphasizing the need for rigor.

Property taxes accounted for about 4.4 percent of Italy’s receipts in 2010, down from 5.2 percent in 2009. In France, the contribution was 7.9 percent in 2009 and 8.1 percent in 2010. Total Italian tax receipts were about 42.3 percent of gross domestic product in 2010, greater than the 38.9 percent weighted average of the 17 countries that share the euro, according to statistics from the European Commission.

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