The World from Berlin: 'Berlusconi Would Do Europe a Big Favor by Quitting'
Italian leader Silvio Berlusconi, weakened by a party rebellion and growing criticism of his failure to deliver reforms, has denied rumors he is about to quit. On Tuesday, though, he faces a critical vote in parliament. German commentators hope that he loses.
On Monday, Italian Prime Minister Silvio Berlusconi denied reports that his resignation was imminent. On Tuesday, there are once again signs that his government may not be able to survive for much longer. Indeed, Berlusconi faces a crucial parliamentary vote on public finances on Tuesday afternoon which could topple his government if enough party rebels desert him.
Many, it would seem, are hoping that he will go. He has failed to implement the tough reforms that are needed to restore confidence in Italy, the euro zone's third largest economy, and many have begun to see him as an obstacle to solving the euro-zone debt crisis.
Indeed, his denial of resignation rumors on Monday sent investors hurrying to dump Italian bonds, boosting the yield on Italian 10-year government paper to record highs of just under 7 percent -- a borrowing cost regarded as unsustainable for Italy.
"I'm not leaving," was the headline in the fanatically pro-Berlusconi newspaper Il Giornale, owned by Berlusconi's brother. News reports said Berlusconi's chances of winning the vote appeared to be increasing because the center-left opposition may abstain, which would make it easier for the essential ratification of the 2010 public accounts to go through parliament. Also, estimates vary widely over how many center-right deputies will actually rebel against him in the vote. But both AP and Reuters are now reporting that his most important ally, Umberto Bossi of the Northern League, has pushed him to step down on Tuesday. The parliamentary debate starts at 3:30 p.m. CET.
There are deep fears that Italy could become the next euro-zone member in need of a bailout unless it takes convincing steps to bring down its burgeoning debt -- the equivalent of 120 percent of its gross domestic product -- and restores investor confidence in the strength of its economy.
If the 75-year-old Berlusconi is defeated in the vote, he could either resign immediately or be ordered by President Giorgio Napolitano to call a confidence vote. His departure would lead to an early election, which could cause further market turmoil because it would spell months of political uncertainty and delay reforms.
Markets would prefer a national unity or technocrat government, but its formation would require the support of Berlusconi and his political allies -- and they oppose the idea.
German commentators have gloomy predictions for Italy and the euro zone, and a message for the scandal-ridden leader who has survived myriad crises over the years: This time, please, just go.
Business daily Financial Times Deutschand writes:
"Silvio Berlusconi should not be underestimated. People have often declared his political career over and predicted the imminent resignation of the Italian prime minister -- and he always bounced back. Markets, unfortunately, can't change that."
"The fact that markets reacted with such disappointment and the risk premiums on government bonds shot to record levels when Berlusconi denied the resignation rumors shows how deeply confidence has fallen in his ability to govern and his credibility. He would do his country and Europe a big favor if he at last resigned. But that alone wouldn't solve the country's problems."
"Berlusconi has become an ever greater burden for his country. Not because investors have taken that view but because even his ministers and parliamentarians no longer believe him and are turning their backs. The government can't decide on reforms in these circumstances. The premier may be able to cling to his office, but he can no longer govern."
"The government and opposition should today usher in the post-Berlusconi era by forming a new government made up of non-partisan officials and experts -- just like former Prime Minister (Carlo Azeglio) Ciampi did in 1993 with his one-year 'technocrat government': it gave the republic, which had been discredited by political scandals, corruption, nepotism and inefficient bureaucracy, a fresh start. Italy needs one again."
Center-left Süddeutsche Zeitung writes:
"First Greece, then Italy. There is mounting fear among investors that Rome may default. At the start of this week the yield on 10-year government bonds rose above 6.5 percent for the first time. That is alarming. At 7 percent, Greece, Ireland and Portugal had to seek a bailout from the rescue fund. Euro member states and the International Monetary Fund (IMF) have no faith in Italy's pledges to cut spending and implement reforms."
"The last few weeks have been a debacle for the would-be saviors of the euro. Public debt in the euro zone measured in terms of economic output is less than in the US. The public debt ratios have risen in the past 10 years, but not nearly as fast as in America or Britain. The average budget deficit of all the euro members isn't even half as big as that of the British and Americans. But those facts aren't of interest, since fear and mistrust have taken hold in Europe."
"Merkel and Sarkozy have only themselves to blame. First they forced private creditors to forgive Greece part of its debt. Then they speculate about Athens leaving the euro zone. That sealed the impression that government debt was no longer safe. A domino effect has begun, and it will be hard to stop. Banks and insurers are dumping bonds of ailing euro states on a massive scale in order to brace themselves for a worsening of the crisis -- in doing so, they are making everything worse."
"The banking and insurance supervisory authorities are still refusing to contemplate the consequences of a debt cut by a large country like Italy or even its departure from the euro zone -- the result would be so shocking. At the end of June, European banks held just under 250 billion (344 billion) of Italian government bonds. If large parts of that had to be written off, a run on the banks could no longer be ruled out. Institutional investors or companies could be tempted to withdraw their money from Italian bank accounts, and private investors would try to find safe havens for their savings. That wouldn't just cause Italian banks to wobble, but also their business partners all over Europe."
"No one in the bond markets believes that the latest 'comprehensive rescue package' for the euro will last more than a few weeks. A bigger capital cushion for banks at best tackles the symptoms of the crisis but not the cause: the risk of sovereign defaults. And the plan to improve the firepower of the euro rescue fund EFSF relies on a questionable mixture of doubtful financial tricks and vague promises. Economists are poking fun at the move by saying that politicians have delivered a water pistol instead of the promised bazooka."
"For the time being, only the European Central Bank will remain as lender of last resort."
Business daily Handelsblatt writes:
"Italy has wasted a lot of time. Since the summer, when the crisis escalated and looked certain to engulf Italy, the country has launched two austerity packages worth billions of euros, which haven't been implemented yet, and has made many pledges. So far the only concrete step taken is a one-point rise in value-added-tax. The government has responded to external pressure, but it hasn't been proactive itself."
-- David Crossland
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- Pt. I: How a Good Idea Became a Tragedy
- Pt. II: How the Euro Zone Ignored Its Own Rules
Corriere della Sera
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