Napolitano Extends Italy Impasse as Cyprus Tallies LossesAndrew Frye
Italy’s political impasse extended into a second month as a 10-man committee named by President Giorgio Napolitano started work on building consensus toward a new government before his term expires in six weeks.
“We will try to at least create more favorable conditions to unblock a political situation hardened by irreconcilable positions,” Napolitano said today after meetings in Rome with the advisers he appointed on March 30. Italy’s divided parliament, the result of inconclusive elections on Feb. 24-25, must also come together behind a successor to the 87-year-old head of state before his mandate ends May 15.
The delay drags out the uncertainty over budget discipline in the third-largest euro-area economy as cracks in the 17-member currency are exposed by bank-deposit losses imposed in Cyprus in return for a bailout. Fiscal austerity, the mantra of German-led northern euro nations, was repudiated by Italian voters, and parliament is stuck haggling over how to proceed.
Investors should be “worrying much more about the political stalemate in Italy,” Nouriel Roubini, a professor at New York University, said at a conference in Uludag, Turkey, on March 30. “Austerity fatigue may clash with the bailout fatigue.”
Italian bonds gained, with yields on 10-year notes falling 10 basis points to 4.66 percent at 3:24 p.m. in Rome. That narrowed the difference between yields on similar-maturity German bunds 12 basis points to 3.36 percent.
Napolitano said the advisers would conclude their work in eight to 10 days and not focus on forging an agreement for the formation of a government. The main responsibility of the advisers is to set priorities and take stock of the differences and points of agreement among the parties, he said.
Yesterday, Angelino Alfano, an ally of former Prime Minister Silvio Berlusconi, urged a speedy conclusion to the advisers’ work and pushed for more direct dialogue among the rival forces in parliament.
Napolitano is buying time for Pier Luigi Bersani’s Democratic Party and the forces led by Berlusconi to come to terms on a broad coalition that would rest on a stable majority. The president, who sounded out European Central Bank President Mario Draghi before announcing his plan, refused to give Bersani a mandate as prime minister without proof he could command enough support.
‘Day of Reckoning’
“Napolitano has chosen to delay the day of reckoning,” James Walston, a professor at the American University in Rome, said March 31 in a blog posting. “The president knows that there has to be a reliable majority in order to protect the Italian reputation on the world bond markets.”
In Cyprus, the fifth euro country to seek an international bailout, the central bank said over the weekend it may impose losses of as much as 60 percent on Bank of Cyprus Plc accounts of more than 100,000 euros ($128,000) as part of a deal to stop the country from going bankrupt. That plan comes after the Cypriot parliament rejected an earlier proposal to force losses on all depositors.
Bersani and Berlusconi are being nudged by Napolitano into renewing their talks as the president isolates Beppe Grillo’s Five Star Movement, the third-biggest force in parliament. Napolitano’s group of advisers, who will consider economic and institutional-reform measures, includes lawmakers with ties to the two leaders. Grillo’s group, which ruled out governing in partnership with another party, has no representation.
Italy “doesn’t need ‘caretakers of democracy,’ but rather to make its parliament function better and quickly,” Grillo said in a March 31 blog post criticizing Napolitano.
Italy is stuck in its fourth recession since 2001, and each of the top three political forces has proposed tax cuts aimed at spurring growth. Investors, who buy more than 30 billion euros of bonds each month to finance Italy’s debt, are counting on a deal that will ensure a government strong enough to pass measures to boost the economy and manage the budget.
“The house is on fire, and further delays and extensions wouldn’t be understandable,” Alfano said in an Ansa report that the politician posted on his website. “We believe it best if Napolitano restarts consultations with political forces and if these political forces restart talks among themselves.”
Napolitano reiterated that he will serve until his mandate ends, denying reports that he was considering a resignation to speed the entry of his successor into the talks. Presidents in the final stages of their mandates aren’t permitted to dissolve parliament and call new elections, an option that would be available to the next incumbent.
“This is crucial because the rationale for an early resignation was to hasten the election of a successor who could dissolve parliament,” Roberto Perli, managing director at International Strategy & Investment Group in Washington, said in a report. “The possibility that could unsettle markets the most, new elections in June, seems unlikely.”