Berlusconi to resign [once key economic reforms have been approved]

As I mentioned here, Italy have called in the International Monetary Fund (IMF), but no money has changed hands, according to Berlusconi…  Tonight, following a technical vote which saw Silvio Berlusconi lose his parliamentary majority, and with rising yields on Italy’s 10-year benchmark bonds, the Italian Prime Minster has “confirmed he intends to resign after key economic reforms have been approved.”

Speaking on TV, the [Italian] prime minister said he would have preferred to call early elections but the final decision rested with President Giorgio Napolitano.

Once this finance law is approved, along with the amendments on everything which Europe has asked of us and which the Eurogroup has asked for, I will resign, so that the head of state can open consultations,” he said. [added emphasis]

The BBC’s Alan Johnston in Rome says there has been speculation that an interim government of technocrats might be ushered in, a move that Mr Berlusconi clearly opposes.

But the question of who led the government was less important than doing “what is right for the country”, Mr Berlusconi added.

Earlier, President Napolitano announced the decision in a statement.

“Once this engagement is fulfilled, the prime minister will hand in his mandate to the head of state who will proceed with appropriate consultations, paying close attention to the positions and proposals of all political forces,” he said.

Mr Berlusconi had shown “his awareness of the implications of the results of today’s vote” as well as “concern for the urgent need to give prompt answers to the expectations of European partners”, Mr Napolitano added.

The end of an era?

Update  His pledge to resign doesn’t appear to have convinced the markets.  As the Irish Times reports

Italian bond yields hit record highs today as prime minister Silvio Berlusconi’s pledge to step down as soon as his government’s austerity budget is approved by parliament failed to calm markets

Markets showed little or no relief that a man they saw as an obstacle to economic reform planned to leave office. The yield on Italy’s 10-year benchmark bonds rose sharply to 7.02 per cent, the highest since the euro was founded in 1999 and over the 7 per cent level widely seen as unsustainable at which Portugal, Greece and Ireland were forced to seek a bailout.

The Guardian business live-blog asks why

So why didn’t Berlusconi‘s resignation calm the markets, rather than creating more alarm? There are three main reasons:

1) The political uncertainty. Berlusconi has promised to go, but he hasn’t actually quit. He indicated this morning that he still favours early elections — but that would mean a lengthy campaign and no promise of a clear victor at the end.

Investors would much prefer some kind of unity government who could press on with the urgent task of bringing in economic reforms. Not just pass a budget this month – actually implement it.

2) Europe’s own confusion. The deal agreed two weeks ago in Brussels looks less impressive by the day. The plan to extend the European financial stability facility to €1trn is floundering because the rich emerging markets are unwilling to provide the funds.

3) Italy’s financial position. Its national debt is approaching €2 trillion, giving a debt-to-GDP ratio of 120%. Too big to bail?

The failure of the G20 to make serious progress in Cannes last week could now rebound on them.

Italy was expected to auction €5bn of government debt on Thursday – government sources were insisting yesterday that it will still go ahead….

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  • Cynic2

    He only goes when EVERYTHING s done. This is Italy. Nothing is ever finished so he has to stay for good.

    Its a weasel commitment from the Tony Blair school of public statements

  • I have to agree, Cynic2. I don’t believe that anything that Berlusconi says can be taken at face value, giving his misbehaviour in lots of fields over the years. I would have added a few adjectives but may likely have got a yellow card.

  • Cynic2

    Joe

    I want one of those for Christmas

  • Pete Baker

    Update His pledge to resign doesn’t appear to have convinced the markets. As the Irish Times reports

    Italian bond yields hit record highs today as prime minister Silvio Berlusconi’s pledge to step down as soon as his government’s austerity budget is approved by parliament failed to calm markets

    Markets showed little or no relief that a man they saw as an obstacle to economic reform planned to leave office. The yield on Italy’s 10-year benchmark bonds rose sharply to 7.02 per cent, the highest since the euro was founded in 1999 and over the 7 per cent level widely seen as unsustainable at which Portugal, Greece and Ireland were forced to seek a bailout.

    The Guardian business live-blog asks why

    So why didn’t Berlusconi‘s resignation calm the markets, rather than creating more alarm? There are three main reasons:

    1) The political uncertainty. Berlusconi has promised to go, but he hasn’t actually quit. He indicated this morning that he still favours early elections — but that would mean a lengthy campaign and no promise of a clear victor at the end.

    Investors would much prefer some kind of unity government who could press on with the urgent task of bringing in economic reforms. Not just pass a budget this month – actually implement it.

    2) Europe’s own confusion. The deal agreed two weeks ago in Brussels looks less impressive by the day. The plan to extend the European financial stability facility to €1trn is floundering because the rich emerging markets are unwilling to provide the funds.

    3) Italy’s financial position. Its national debt is approaching €2 trillion, giving a debt-to-GDP ratio of 120%. Too big to bail?

    The failure of the G20 to make serious progress in Cannes last week could now rebound on them.

    Italy was expected to auction €5bn of government debt on Thursday – government sources were insisting yesterday that it will still go ahead….

  • John Ó Néill

    Silvio has now said he won’t stand for office in the next election but bond yields were reported as high as 7.45% this morning.
    Various outlets are reporting that China is considering what it can leverage out of this rather than that it simply won’t play ball.

    Wonder will Merkel and Sarkozy come out and threaten to kick Italy out of the eurozone/EU as well?

  • SethS

    Hmm, so an incoming government get stuffed with whatever scheme the previous one has cooked up. Sound familar?

  • Johnny Boy

    It’s the death rattle of the EURO, cue the worldwide bank bailouts, and the depression.

  • Neville Bagnall

    It should be noted that in the period 1/1993-12/1997 the yield on Italian 10 year bonds varied between 8 and 14% http://www.tradingeconomics.com/italy/government-bond-yield

    This was at a time when its GDP growth rate never got above 1.5% http://www.tradingeconomics.com/italy/gdp-growth

    And its Debt to GDP ratio was over 120% http://www.tradingeconomics.com/italy/government-debt-to-gdp

    Granted, inflation peaked at at nearly 5.5% http://www.indexmundi.com/italy/inflation_rate_(consumer_prices).html

    So there is some indication that Italy can handle somewhat higher yields (Portugal, Ireland and Greece never approached those levels pre-crisis as best as I can determine).

    However, I don’t think its going to matter. The 7% figure has become a touchstone and its market sentiment that matters more anyway.

    While it looks like the delaying tactics might have got Spain and Ireland back to a balanced budget and debt renegotiation, it hasn’t worked for Greece, Portugal is iffy and Italy is tottering.

    Getting political stability in Italy and Greece may have some effect, but the options are narrowing and balanced budgets are still a long way away.

    It increasingly looks like Germany and the ECB will have to pay a short term price in monetary inflation in return for a long term process to prevent it happening again.

    Nothing else will satisfy the markets it would appear.

  • Greenflag

    Monetary inflation and Germans don’t go together . Their historical experience of hyper inflation is unique in European economic and indeed world history . IIRC their inflation led to the emisseration of the German middle class and provided the economic and fiscal back up to the rise of the national socialists .

    ‘Nothing else will satisfy the markets it would appear.’

    Even that may not suffice . Just look at the Irish banks telling the government and the people that bailed them out where to go. There is no known limit to the ‘greed’ of the banking and financial sectors other than probably bloody revolution and even that would provide a respite of perhaps a decade or two .

    When you add the above sad fact to the balless politicians and the neutered fourth estate then its full speed ahead for the lemming leaders .

    http://www.rte.ie/news/2011/1109/banks.html