Monti Gets Investors’ Approval as Bonds Cast Doubt on Berlusconi

Mario Monti, the university president appointed to run Italy at the height of Europe’s financial crisis 15 months ago, is getting the stamp of approval from investors betting that he and front-runner Pier-Luigi Bersani will block Silvio Berlusconi’s comeback.

Traders anticipating voters will choose to stay his course sent Italian bonds and stocks higher today. Yields on 10-year notes fell 12 basis points to 4.32 percent and the FTSE MIB equity index advanced 2 percent at 2:20 p.m. in Rome.

Monti “is the first leader to make it clear you have to look out for future generations and not just tomorrow’s vote,” said Fabrizio Fiorini, chief investment officer at Aletti Gestielle SGR SpA. “This concept of looking out for future generations is absolutely new for Italy.”

Initial estimates will be released by pollsters shortly after voting stations close at 3 p.m. The Interior Ministry will start its count with the Senate today and then move on to the Chamber of Deputies.

Monti, 69, was named by President Giorgio Napolitano in November 2011 to replace a discredited Berlusconi, when Italy’s 10-year borrowing costs soared to a euro-era record of 7.5 percent, fueling doubts about whether the world’s third-biggest debtor could stay in the euro.

In his first weeks in office, the one-time Goldman Sachs Group Inc. adviser and president of Bocconi University pushed through a raft of measures to calm financial markets with the backing of 80 percent of lawmakers. They included 20 billion euros ($26 billion) of austerity measures, including a tax on primary residences, and an overhaul of the pension system.

Monti’s Legacy

Monti’s legacy is in doubt in the first popular test of his program. A resurgent Berlusconi and former comedian Beppe Grillo have promised to roll back his austerity if elected. Their campaigns gathered momentum in the final month as recession-scarred voters turned away from Bersani, the union-backed front-runner who endorsed Monti’s rigor. Monti was running fourth in opinion surveys when a polling blackout began two weeks ago.

Turnout at 10 p.m. yesterday was 55.2 percent, down from 62.6 percent at the same time five years ago, according to the Interior Ministry.

Bersani had 33.8 percent support in an SWG Institute poll published Feb. 8, 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 slipped 0.4 points to 13.4 percent, according to SWG.

Swing Regions

Bersani probably will gain a majority in the 630-seat Chamber of Deputies, the surveys suggest. Victories by Grillo, 64, or Berlusconi, 76, in swing regions such as Lombardy and Sicily may prevent anyone from controlling the Senate, producing gridlock or even new elections.

“If Berlusconi wins, the markets will be quite concerned, but if he doesn’t, if there’s a hung parliament, that’s probably about what’s expected,” Alexander Friedman, global chief investment officer of UBS AG, said Feb. 22 on Bloomberg Television’s “On the Move” with Francine Lacqua. “It still won’t be nearly as scary as it was a year ago.”

That fear, which drove Bersani and Berlusconi to back Monti’s initial budget cutting, gave way to politics as usual.

Monti says he fell short in deregulating the labor market because he couldn’t get Bersani to endorse his proposal to make firing easier. The premier found it more difficult to broker compromises as improving markets took the pressure off.

Two rounds of unlimited three-year loans to banks in December 2011 and then in February 2012 by the European Central Bank sent Italian 10-year yields down more than 200 basis points by the first week of March.

Key Weeks

“Without the first two weeks of the Monti government Italy would have collapsed,” said Andrea Ichino, a professor of economics at the University of Bologna. “The overall judgment is positive, in that in the beginning it did what should have been done, particularly with the pension system. After that not much happened.”

Ichino’s brother Pietro Ichino, also an economist, is running for parliament on Monti’s list.

Monti has acknowledged his tax increases pushed Italy deeper into its fourth recession since 2011. Within his first three months in office, Monti sought to shift the focus of Europe’s crisis fight from austerity to stimulating growth. While his press helped lay the groundwork for the rescue program announced by the ECB in September, the Italian economy continued to slide.

Gross domestic product will contract 1 percent this year after a 2.2 percent decline in 2012, the European Commission forecast Feb. 22. Unemployment will reach 12 percent in 2014 after rising to 11.6 percent this year, the commission said.

“He may have stopped the car from falling off the cliff, but he didn’t not manage to turn the car around,” said Joerg Kraemer, chief economist at Commerzbank AG.

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