Monti’s Austerity Pushes Italy Toward Parliamentary Upheaval

Elisa Dalbosco says she lost her job when it came time for her former employer, a refugee shelter in northern Italy, to either offer her a permanent contract or let her go.

“I have a college degree and it would have cost too much,” said Dalbosco, who at 26 is now unemployed and poised to vote for self-described populist Beppe Grillo in elections on Feb. 24 and Feb. 25.

Dalbasco’s disappointment shows why Italy is braced for its biggest political upheaval since 1994. Dalbosco, whose ballot five years ago went to an ally of front-runner Pier Luigi Bersani, won’t vote for anyone tied to incumbent Mario Monti because she says his austerity policies in a shrinking economy put the interests of banks ahead of everyone else’s.

Monti, a divisive figure at home, is celebrated abroad for replacing a discredited Silvio Berlusconi 15 months ago and calming the European sovereign debt crisis. While some of his European counterparts say Monti deserves a second term as head of government -- and steward of Italy’s $2.6 trillion of debt load -- voters may push the nation away from his rigor that has driven financial-market gains.

“The fear remains that the general election produces a significant no-confidence vote on the current austerity plan and the need to reform further,” Raj Badiani, principal IHS Global Insight economist for Italy, said in a research report this week. “This could spark an immediate spike in bond yields in the aftermath of the election.”

‘Major Challenge’

Royal Bank of Scotland Group Plc is advising clients to bet against Italian bank debt. JPMorgan Chase & Co. economist Alex White predicted yesterday in a research report that Grillo would be “a big winner” in the election and his voters will “pose a major policy challenge” for the next government. Riccardo Barbieri, of Mizuho International Plc in London, cited Italian comic Claudio Bisio who said on state-broadcaster RAI this month that voters have the leaders they deserve.

“Italy does not need to change its politicians, it needs to replace its voters,” Barbieri said, paraphrasing Bisio. “The latest press reports echo that message as they suggest” Grillo is gaining ground, said Barbieri, chief European economist, in a research note published today.

Italian stocks have lagged behind European benchmarks this year as the campaign progressed. Italy’s FTSE MIB Index slipped 1.6 percent this year through yesterday, while the Stoxx Europe 600 Index advanced 1.9 percent. Last year, the Italian index gained 7.8 percent as the Stoxx Europe climbed 14 percent.

Swing Regions

Bersani, who polls show is the likely winner in the lower house, needs to win in the Senate races in the swing regions of Lombardy, Campania and Sicily to gain control of the government. If he falls short in the upper house, he and Monti have said they may form a coalition. Berlusconi is seeking to overcome a deficit in opinion polls to steal the victory from Bersani, while Grillo has embraced the role of spoiler and has said his goal is to send Italy back to the polls as soon as possible.

Investors prospered during Monti’s tenure as his tax increases deepened the fourth recession since 2001 and helped push unemployment to a 13-year high of 11.2 percent. Monti, an economics professor and former Goldman Sachs Group Inc. adviser, has handed bondholders returns of 28 percent since Nov. 16, 2011, when he was named premier by President Giorgio Napolitano.

Bonds Gain

Italian 10-year bonds rose today, sending the yield down 2 basis points to 4.47 percent at 11:10 a.m. in Rome, even as the European Commission said the recession was worse than expected.

Italy’s economy will shrink 1 percent this year after a 2.2 percent decline in 2012, the Brussels-based commission said today in revised forecasts. That’s deeper than the 0.5 percent contraction it predicted in November. Unemployment will probably reach 12 percent, the commission said.

With the backing of 80 percent of lawmakers, including Bersani’s party and Berlusconi’s allies, Monti succeeded in implementing budget rigor. He imposed 20 billion euros ($26 billion) of austerity measures and raised the retirement age. He says he fell short in his bid to deregulate the labor market to encourage hiring.

“There were forces on both sides of the spectrum against this strategy, especially the Left,” Monti said yesterday in a televised interview on Canale 5, according to newswire Ansa.

Monti remains under attack from both Grillo, a 64-year-old former comic, and a resurgent Berlusconi.

Anti-Austerity Push

The push against EU-imposed austerity has animated the electorate in the campaign’s closing month and sapped strength from Monti and Bersani, who have emphasized its importance. Grillo, wrapping up a 73-stop tour of Italy today in Rome, has filled city squares. Berlusconi has garnered headlines with a pitch to turn back Monti’s policies.

Monti has “annoyed a lot of people,” said Nicola Marinelli, who oversees $180 million at Glendevon King Asset Management in London.

Since the campaign began in December, Bersani lost support in opinion polls. The 61-year-old former communist and ex-industry minister struggled to galvanize voters as Berlusconi did with a proposal to hand out tax refunds of more than $5 billion in cash as his first act in office.

Bersani’s career as a politician has also hurt him with voters looking to rattle established interests. Cologero La Placa, a 51-year-old retired veteran of the Afganistan war, and Silvano Saba, a 45-year-old worker at an arms maker, are deserting Bersani’s Democratic Party, or PD, for Grillo.

Opinion Polls

The leader had 33.8 percent support in an SWG Institute survey published Feb. 8, when a two-week poll blackout began, down 1.1 percentage points from Jan. 9. Berlusconi gained 2.5 percentage points to 27.8 percent over the same period, while Grillo rose 2.9 points to 18.8 percent. Monti, running fourth, slipped 0.4 points to 13.4 percent, according to SWG.

Bersani is running against two experienced showmen in Grillo and Berlusconi, and his spread-the-wealth campaign has paled next to the appeals of the performers. Bersani talks about the need for budget rigor and respect for rules, while Berlusconi, standing trial on charges of paying for sex with a minor, promises tax amnesties and a tougher negotiation stance against German demands for balanced budgets.

Grillo, who embraces the term populist, tells crowds at his two-a-day rallies that Italy must institute stipends of 900 euros for the unemployed and cut the work week to 20 hours. Italy’s debt should be renegotiated, and all lawmakers must be swept out, he says. Grillo, who isn’t running himself due to a manslaughter conviction in the 1980s, chose the candidates of his 5 Star Movement in what he called an online primary.

“He’s the only one singing out of tune,” La Placa, the ex-soldier, said in an interview in the mountain town of Bolzano in northern Italy after Grillo spoke to a rally of about 2,000 people. Grillo wants “to bring normal people into an abnormal world, that is, our parliament.”

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