End of Berlusconi era in Italy

by Eric J Lyman in Rome

BELEAGUERED Italian Prime Minister Silvio Berlusconi has agreed to stand down after parliamentary assent to a new austerity package. Demands for his resignation had grown following a big blow in a budget vote in parliament on Tuesday when his centre-right governing coalition lost its majority.

As a result, Berlusconi tendered his resignation after meeting with Italian President Giorgio Napolitano, and he says he will go after parliament gives its approval to the new austerity measures. The austerity plan is expected to be voted in parliament later this month.

Berlusconi had been defiant ahead of the vote on a 2010 public finance account, rejecting calls from the opposition and even within his own coalition to step down.

But the vote, normally a formality, only garnered 308 yes votes, with one abstention, while 321 MPs, including the opposition and 10 deputies from the premier’s own coalition, did not take part in the vote.

Earlier in the day, the yield on Italy’s benchmark 10-year bonds rose to 6.74 per cent, setting a new record for the Euro era for the third time in four days.

Though the yield retreated slightly later in the day, it has moved within striking distance of the seven per cent threshold that forced the hand of Greece, Ireland, and Portugal, signalling the point where they needed bailout money from the European Union.

But Italy, which is the eighth largest economy in the world and the third largest in the Eurozone, has an economy nearly three times the size of those of Greece, Ireland, and Portugal combined, making it far too large for the European Union to bail out.

“It is difficult to imagine that we in Europe would have the resources to take a country the size of Italy into the bailout programme,” Finland’s Prime Minister Jyrki Katainen told the Finnish parliament on Tuesday.

Luca Silipo, a former Italian Central Bank official and now an economist with Natixis SA, said the survival of the Euro itself could be at stake if Italy follows suit with Greece.

“If Italy gets to the same state Greece was in, it would no longer be possible to have the Euro,” Silipo said. “If Italy goes bankrupt, then France will be next. You clearly don’t want Italy to have the same problem as Greece.”

Analysts believe the markets will welcome Berlusconi’s departure. The Borsa Italiana in Milan has already welcomed the latest development, closing higher for the second consecutive session on Tuesday.

“The current equation is a simple one: if Berlusconi is bad for the economy, then anything that makes it more likely Berlusconi will leave is welcome news,” said Javier Noriega, chief economist with investment bankers Hildebrandt and Ferrara.

Now it is clear that Berlusconi’s departure is imminent. But it is not clear what will happen next.

Erstwhile Berlusconi ally, Northern League leader Umberto Bossi, said earlier that Berlusconi should be replaced by Angelino Alfano, the head of Berlusconi’s People of Freedom party.

Meanwhile opposition leader Pier Luigi Bersani, the secretary of the Democratic Party, and other opposition politicians are calling for the formation of a non-partisan technical government that would take care of day-to-day matters of the state until a special elections are held. And it is still possible that Berlusconi could be asked by the president to oversee a caretaker government with diminished powers until the election of a new parliament.