Bloomberg News

Berlusconi Seeks IMF Monitoring as Defections Jeopardize Revamp

November 07, 2011

Nov. 4 (Bloomberg) -- Prime Minister Silvio Berlusconi’s bid to cut the euro-region’s second-biggest debt was put under international surveillance as his fraying coalition threatens Italian efforts to erect a wall against Europe’s debt crisis.

Berlusconi’s government asked the International Monetary Fund to monitor its debt-reduction progress, European Commission President Jose Barroso said at a Group of 20 summit in France today, after an Italian official earlier denied the nation had requested such IMF help. Commission experts will be in Italy next week to begin monitoring, while the IMF will carry out quarterly assessments, Barroso told reporters in Cannes.

Berlusconi’s bid to keep Italy from succumbing to the debt crisis suffered a setback yesterday when at least two lawmakers defected from the ruling party to the opposition. As many as eight other members of his coalition have called for a change of government to tackle the debt crisis, potentially denying him a majority in the legislature, Corriere della Sera reported today.

“If the current Greek tragedy is not to turn into an Italian tragedy, with far more serious and far-reaching consequences for the euro zone, Berlusconi must resign immediately,” Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London, said in an e-mail. The premier may end up “remembered as the architect of Italy’s descent into an economic inferno.”

Surging Yields

Italy’s 10-year borrowing costs are nearing the 7 percent level that forced Greece, Ireland and Portugal to seek bailouts. The yield on the nation’s benchmark 10-year bond rose was 6.32 percent as of 2:01 p.m. in Rome, after reaching a euro-era record of 6.399 percent yesterday.

Berlusconi may face a confidence vote in Parliament later this month on economic-growth and austerity measures promised to the European Union. The premier, 75, last faced a confidence ballot on Oct. 14, when he survived with 316 votes in the 630- seat Chamber of Deputies.

The next test of his majority will come when the Chamber of Deputies votes to rubberstamp the 2010 budget report early next week. The government lost the initial routine vote on the report last month, sparking calls for the premier to step down.

“Should the government fail to reach the majority, we expect President Napolitano to ask Berlusconi to step down and to start some consultations to form a technical government that would eventually speed up the reforms process that Italy is currently required to implement,” Annalisa Piazza, an economist at Newedge Group in London, said by phone.

Presidential Talks

President Giorgio Napolitano this week urged the government to immediately implement the economic measures, which were pledged in a letter sent by Berlusconi last week to the EU. Napolitano has been consulting with opposition leaders this week in a bid to seek the broadest possible support for the overhaul.

In a late-night meeting on Nov. 2, the Cabinet only agreed on a limited package of the measures to include as amendments in a spending bill to be voted on by Nov. 15. The moves include a plan to accelerate 60 billion euros in asset sales, liberalize closed profession and boost infrastructure investment, Il Sole 24 Ore newspaper reported.

The government is likely to survive to the end of its term in 2013 even as some allies defect, Transport Minister Altero Matteoli said today. Berlusconi has always “managed to pass” confidence votes and even now “amid an attitude that takes for granted that there will be a government crisis, I don’t believe” that will happen, Matteoli said told reporters in Rho, northern Italy.

--With assistance from Tommaso Ebhardt in Rho. Editors: Jeffrey Donovan, John Fraher

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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