Bloomberg News

Berlusconi Fights for Political Survival as Yields Surge

October 14, 2011

(Updates with economist’s comment in fourth paragraph, bond yields in fifth, Scajola’s allies in ninth.)

Oct. 14 (Bloomberg) -- Prime Minister Silvio Berlusconi faces a parliamentary confidence vote today to determine whether he still has enough support to continue governing Italy through Europe’s deepening debt crisis.

“The government asks for a confirmation of confidence because it is profoundly aware of the risks facing the nation,” the premier said in a 15-minute address yesterday to the lower house of Parliament, which will begin debate on the confidence motion at 11 a.m. and start voting at around 12:30 p.m. in Rome.

The confidence vote, the second Berlusconi has faced in the past month, was called after the premier failed to muster a majority in the Chamber of Deputies this week to rubberstamp last year’s budget report. President Giorgio Napolitano then urged Berlusconi to clarify “questions and concerns” about his ability to govern the euro area’s third-biggest economy.

“We think Berlusconi will survive the vote,” Fabio Fois, an economist at Barclays Capital in London, wrote in a note to investors. Still, its outcome “is clouded by a larger-than- usual degree of uncertainty” and “growing opposition within the governing coalition is likely to have eroded its majority in Parliament.”

Bonds Slide

Pressure is mounting on Berlusconi as investors continue to dump Italian debt even after the European Central Bank began buying it on Aug. 8 to stem surging borrowing costs. The yield on the nation’s benchmark 10-year bond rose for a rose for a sixth day to reach 5.864 percent at 9:36 a.m. in Rome. That’s the highest since Aug. 5, when the premier unveiled 54 billion euros ($73 billion) in austerity measures that convinced the ECB to backstop Italy.

The premium investors charge Italy to borrow for 10 years compared with Germany increased five basis points to 376 basis points. That compares with a euro-era record of 416 basis points on Aug. 5.

Berlusconi, who faces calls by the opposition and business leaders to resign, is struggling to convince investors that he can cut Europe’s second-biggest debt load after the country was downgraded by the three main rating companies in the last month. He’s also a defendant in four criminal trials, including one for paying a minor for sex. The premier denies any wrongdoing.

While opposition leaders vowed to oppose the government in today’s vote, Berlusconi is likely to survive the motion, said Pier Luigi Bersani, leader of the main opposition party, Ansa newswire reported. “It’s all about survival, not governing the country,” Bersani was cited as saying yesterday.

Allied Threat

Former Industry Minister Claudio Scajola said he will back Berlusconi in the vote, Ansa reported yesterday. A member of the premier’s party, Scajola and 15 allies in Parliament were ready to topple the government, affaritaliani.it website reported on Oct. 12. Two of his allies, Giustina Mistrello Destro and Fabio Gava, will skip today’s vote, their spokesmen said by phone.

If the government loses the ballot, Napolitano will first consult with all the main political parties to see if another governing majority can be cobbled together. Should those talks fail, the president may reach outside of Parliament to lure non- politicians to lead a so-called technical government, or opt for early elections.

“The markets may take a change of power” in Italy “as good news, even if it’s clear to no one what would come after Berlusconi and even if Italy’s problems would remain the same,” Alberto Mingardi, an economist and director general of the Bruno Leoni Institute, a research center in Turin, said in an e-mail.

Tremonti’s Role

Berlusconi called for the confidence motion after key allies failed to turn up on Oct. 11 for a routine vote on the 2010 budget report. Finance Minister Giulio Tremonti and Umberto Bossi, who heads the Northern League that’s part of the ruling majority, were both absent from the ballot, raising doubts about their commitment to the government, whose term ends in 2013.

Tremonti, who has clashed with Berlusconi recently on issues including Mario Draghi’s successor as Bank of Italy governor, was working on economic legislation during the lower- house vote and there was no “political reason of any kind” for his absence, the minister said in a statement. Tremonti will attend today’s vote before leaving for a Group of 20 meeting in Paris, his spokesman said by phone.

Draghi’s Demands

Draghi, who takes over as ECB president on Nov. 1, piled more pressure on Berlusconi, telling the government this week that its austerity measures won’t be enough to save the country from an “ungovernable” debt spiral unless it quickly passes measures to boost economic growth.

“If protracted, the high borrowing costs seen in the last three months could largely offset” the effects of the austerity measures, “with a further negative impact on the cost of debt, in a spiral that may end up being ungovernable,” Draghi said in a speech in Rome on Oct. 12.

Italian growth has lagged behind the euro-region average for the last decade, making it harder to cut debt of about 120 percent of output, the second largest in Europe after Greece. Berlusconi told legislators yesterday that austerity measures may slow growth and promised tax, constitutional and judicial reforms to boost the economy.

--Editors: Jeffrey Donovan, Jerrold Colten, Eddie Buckle

To contact the reporters on this story: Chiara Vasarri in Rome at asarri@bloomberg.net; Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editors responsible for this story: Angela Cullen at acullen8@bloomberg.net. Craig Stirling at cstirling1@bloomberg.net


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