(Updates with Mundell comments from eighth paragraph. For more on Europe’s debt crisis, EXT4.)
Dec. 27 (Bloomberg) -- Nobel-prize winning economist Robert Mundell said former Italian Prime Minister Silvio Berlusconi, who resigned last month as Europe’s debt crisis threatened to overwhelm Italy, may stage a comeback.
Prime Minister Mario Monti, who leads an unelected government, “won’t be able to finish the job” of fixing Italy’s public finances, Mundell said in a Bloomberg Television interview. There is a chance Berlusconi “will come back, because he is the strongest politician in Italy since” World War II, he said.
Monti, a former European Union competition commissioner, secured final approval last week for a package of spending cuts and tax increases, bringing to $105 billion, about 5 percent of economic output, the austerity measures that Italians have been asked to swallow since June. Italy’s 1.9 trillion-euro debt is bigger than Spain, Greece, Ireland and Portugal’s combined.
Investor concern that Italy may struggle to finance that debt pushed the country’s borrowing costs to euro-era records last month. Italy needs to sell about 430 billion euros ($562 billion) of bonds and bills in 2012 to meet maturities and cover the budget deficit. The yield on its benchmark 10-year bonds returned today above the 7 percent threshold that led Greece, Ireland and Portugal to seek bailouts.
Berlusconi “didn’t do much to cut back entitlements, but he did stop them from getting worse and worse,” Mundell said. “Maybe he’s too unpopular to come back, but he’s in charge of a powerful force, and I wouldn’t underestimate him.”
Berlusconi said yesterday that he wants “to remind everyone that we are still the majority party in parliament and that the polls are showing that our support is surging because Italians are worried,” according to audio of the comments posted on the website of Sky Italia.
Italian consumer confidence fell in December to the lowest in 16 years as the crisis forced austerity measures and intensified households’ concerns about a probable recession.
Mundell also said the European Central Bank’s record 489 billion-euro three-year loan to the region’s banks is a “blockbuster event” that will, “avert, at least for the time being, any kind of banking crisis.”
He added “it would be a good time for Europe certainly if America had quantitative easing three.”
--With assistance from Gabi Thesing in London and Chiara Vasarri in Rome. Editors: James Hertling, Andrew Davis
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