Market panic over Italy’s debt crisis and political deadlock receded after Mario Monti, a respected former EU commissioner, appeared set to take over the reins of government from the outgoing prime minister, Silvio Berlusconi, and implement tough economic reforms.
However, hopes for a smooth transition receded somewhat on Thursday night after senior officials from Berlusconi’s Freedom People party appeared to throw a spanner in the works by opposing plans to hand over power to a technical government run by Monti, despite apparent support for the idea from Berlusconi.
The split came after a four-hour meeting between ministers and Berlusconi, who had sent a telegram to Monti hours earlier congratulating him on his appointment as a lifetime senator and stating: «I hope you will work hard in the interests of the country.»
After the meeting, the defence minister, Ignazio La Russa, said: «A decision has not been taken due to uncertainty over whether Italy needs a cross-party or technical government or, vice versa, a government sanctified by the vote.»
La Russa suggested that Berlusconi could take the final decision to back a technical government, probably on Saturday after the passing of a package of cuts and stimulus measures demanded by the EU and the International Monetary Fund to push down Italy’s €1.9tn debt and help defuse the eurozone crisis.
But the continuing dissent undermines the likelihood that President Giorgio Napolitano will find quick consensus in parliament if he tries to form a technical government led by Monti. «Monti will need to have the backing of most of Berlusconi’s Freedom People party before any technical government is formed,» warned Roberto D’Alimonte, a professor of politics at LUISS university in Rome.
Berlusconi, who has pledged to resign after the passing of the reform package, initially called for elections. But he appeared to change his mind after Italian bond yields surged above 7% on Wednesday on fears of a prolonged period of political instability during which the reforms would not be implemented.
Napolitano helped halt the fall in Italian stocks and bonds by stressing the reforms would be enacted and appointing Monti a senator, a move seen as facilitating the appointment of the respected economist as head of the government as early as Sunday.
On Thursday the markets reacted swiftly, with the spread between Italian and German bonds dropping back to 520 points from Wednesday’s record 576. The yield on Italian government bonds fell back below 7%, albeit still near the level that pushed Ireland and Portugal into bailouts from the EU and IMF. Fears for a sale of €5bn-worth of 12-month treasury bills by Italy on Thursday proved unfounded, although yields at the sale reached a 14-year high. «We continue to argue that Italy remains too big to bail out, with the worst-case scenario appearing to be Italy defaulting on its sovereign debt,» said Raj Badiani, an analyst at IHS Global Insight. But that probability now stood at 15-20%, he added.
«It is important that Italy can gain faith and I believe that is happening,» said the German chancellor, Angela Merkel.
D’Alimonte said: «Monti is not even prime minister yet and Italy is already saving money thanks to him.»
After Berlusconi held meetings with Fedele Confalonieri, a senior manager at his media firm Mediaset, speculation was rife that Confalonieri had convinced him to give up his insistence on quick elections because of the punishment the prime minster’s companies were taking on the stock exchange.
Giving a technical government the job of implementing tough reforms would also allow Berlusconi’s heir apparent, party secretary Angelino Alfano, to campaign for election with a clean slate when Monti wraps up his mandate.
Among the reforms now in the senate are an increase in the pension age to 67, a sale of state property and farmland, the privatisation of local services, the opening up of closed professions, the reduction of red tape for businesses, the easier firing of state employees, incentives for firms to hire women and young staff, and measures to unclog Italy’s notoriously slow civil justice system.
Monti, who held talks with Napolitano on Thursday and will be in the Italian senate on Friday as the reform package is voted on, has been backed by the opposition Democratic party as well as by centrist parties, accounting for around half the MPs in the lower house of the Italian parliament.
But the opposition Italy of Values party has suggested it may not back a Monti-led government. The party leader, Antonio Di Pietro, said he was irked no one from the presidential palace had phoned to keep him up to speed.
Berlusconi’s coalition ally, the Northern League, is also insisting on an election and has threatened not to back a Monti government, with League leader, Umberto Bossi, claiming that «being in opposition is great, it is more entertaining».
Hence the importance of winning the support of the bulk of MPs in Berlusconi’s Freedom People party.
«When Berlusconi resigned in 1994 and a technical government came in led by Lamberto Dini, it was backed by Berlusconi’s MPs and passed crucial pension reforms,» said D’Alimonte.
«Before Monti takes over he will carefully check that he has broad consensus on the duration of his government, its composition and direction. The markets will watching and ready to punish any deviation from virtue.»
Source: guardian.co.uk