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Berlusconi Survives Confidence Vote as Italian Yields Surge

July 29, 2011

(Updates with Berlusconi surviving vote in first paragraph, bonds in fifth paragraph. See EXT4 for more on Europe’s sovereign-debt crisis.)

July 29 (Bloomberg) -- Italian Prime Minister Silvio Berlusconi survived a confidence vote on a bill critics say will help shield him from prosecution, ending a week of turmoil after bond yields rose on speculation Finance Minister Giulio Tremonti may quit.

The government won the Senate ballot by 160 to 139 votes as it seeks to pass a decree allowing defendants to call an unlimited number of witnesses. Opposition members say the bill may allow Berlusconi to drag out his four trials until the statute of limitations kicks in. The amended legislation will now go to the lower house Chamber of Deputies.

The decree “means never getting to the end of a trial,” Luca Palamara, head of the National Association of Magistrates, said in a statement yesterday. “This measure has been dictated by the need to resolve certain cases and doesn’t bring about any improvement in the efficiency of trials.”

The motion, the 48th confidence vote used by Berlusconi to end debate and drive through legislation, concludes a week when Italy’s struggle to avoid becoming the next victim of Europe’s debt crisis intensified. Borrowing costs surged as the country sold 8 billion euros ($11.4 billion) of debt at an auction yesterday on speculation that Tremonti may resign and Europe’s rescue fund won’t stop contagion.

Italian 10-year bond yields fell five basis points after the vote to 5.85 percent as of 11:14 a.m. in Rome. The difference in yield, or spread, over 10-year German bonds narrowed one point to 326, after reaching 337 points during intraday trading yesterday, the most since July 18.

Graft Probe

Tremonti, widely credited with keeping Italy’s public finances in check during the financial turmoil of the last three years, came under pressure yesterday as newspapers including Corriere della Sera published alleged details of his dealings with Marco Milanese, a former aide who is under investigation by Naples prosecutors for alleged graft.

Tremonti said on July 8 that the probe had prompted him to move out of an apartment in Rome that had been provided to him by Milanese, who denies wrongdoing. In a letter published in today’s Corriere della Sera, the minister admitted he made “mistakes,” while denying any “unlawful acts” related to the use of the apartment. Tremonti, who isn’t under investigation, said in an interview today on state broadcaster RAI that he’s not planning to step down. “I would like to keep doing my job,” he said.

Credit Ratings

Confidence in Italy has waned over the past two months as both Standard & Poor’s and Moody’s Investors Service warned that they may cut its credit rating. Sluggish economic growth and political instability may threaten efforts to reduce the euro- region’s second-largest debt, which stands at almost 120 percent of gross domestic product, the rating companies said.

Today’s vote came amid tension in Berlusconi’s coalition government, which has two years before its term is due to end.

Members of the Northern League, a key government partner, joined the opposition on July 20 in approving a request by prosecutors to arrest a ruling party lawmaker. Still, the League backtracked on a pledge to nix an extension of funding for military missions abroad yesterday, and closed ranks with the premier’s People of Liberty party in approving today’s measure.

Investor concern that Europe’s rescue fund may not prevent debt-crisis contagion is also contributing to higher Italian and Spanish bond yields. European Union leaders at a July 21 summit declined to increase the size of the 440 billion-euro fund as part of an array of additional measures unveiled to fight the crisis. The extra steps still require approval by euro-region nations before they can be implemented.

‘European’ Problem

Asked at yesterday’s news conference whether rising Italian bond yields were due to “speculation,” Tremonti said the problem was “European” and would slowly be resolved.

“The issue isn’t just one of speculation, which can play a role, but one of confidence in a currency based on a common market and also 17 countries,” he said. “What we have seen in the last year is the difficulty in putting together all these countries, these parliaments.”

Finance Ministry Director General Vittorio Grilli, speaking next to Tremonti at the briefing, called on European leaders to speed up the implementation of changes to the region’s bailout fund, saying that the slow process is making investors nervous.

“There is no getting away from the fact that the funding costs for Italy continue to trend higher,” said Peter Chatwell, a fixed-income strategist in London at Credit Agricole Corporate & Investment Bank. “Making the EU summit plan and toolkit a reality, rather than a mere objective, seems the likely requirement for this trend to turnaround.”

--With assistance by Tommaso Ebhardt in Milan and Alessandra Migliaccio in Rome. Editors: Craig Stirling, Rodney Jefferson, Dan Liefgreen

To contact the reporter on this story: Jeffrey Donovan in Prague at

To contact the editor responsible for this story: Craig Stirling at

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