Monday 25 September 2017

Italian bonds at new peak as Berlusconi clings to office

Embattled PM faces key vote today as bond markets push Italian 10-year yields to an unsustainable level of 6.68pc

Emmet Oliver

Italian Prime Minister Silvio Berlusconi threatened to "look into the eyes" of his enemies as he clung on to power and Italy's borrowing costs moved towards dangerously high levels which normally necessitate international bailouts.

Rumours of the 75-year-old Mr Berlusconi's resignation swept markets all day, but he was still hanging on to power last night. However, he faces a key parliamentary vote today in which his majority appears very shaky.

Leading market movers such as George Soros, meanwhile, are predicting that the euro crisis will go on for several years, although ex-ECB executive member Jurgen Stark said that within two years the crisis would be under control.

Reports of his resignation were "totally unfounded", Mr Berlusconi said in an interview with newspaper 'Libero'. He said he would call on a confidence vote next week on the austerity measures and "look into the eyes of those who try to betray me".

Despite his defiance, Italy's 10-year bond yielded 6.45pc, down from a euro-era record 6.68pc, a point dangerously close to where IMF or EU support would normally be needed.

Survival

Mr Berlusconi is struggling to keep his allies in line. The premier now plans to stake the survival of his government in a confidence vote next week on the implementation of measures pledged to the EU.

The first test comes today on a normally routine vote to rubber-stamp last year's budget report that may indicate whether Mr Berlusconi still has a majority in the 630-seat chamber of deputies after key defections.

A third member of Mr Berlusconi's party went over to the opposition last night, after two had left the party last week.

Six other party members called on Mr Berlusconi to resign and seek a broader coalition in a letter to newspaper 'Corriere della Sera' last week. More than a dozen more are ready to ditch the coalition, 'Repubblica' daily reported.

"I fear we no longer have a majority in parliament," interior minister Roberto Maroni said on a talk show yesterday.

Mr Maroni, a member of the Northern League party that underpins the ruling coalition, said he backed early elections.

The desertions may deprive Mr Berlusconi of the support needed in the lower house for tomorrow's vote on the 2010 budget report.

"Mr Berlusconi may still be in office, but he has not been in power for some time," Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, said in response to questions. "He no longer administers."

Mr Berlusconi faces mounting pressure to show he can jump start an economy that has expanded less than the European average.

The yield on the benchmark bond is now close to the 7pc level that drove Greece, Ireland and Portugal to seek bailouts. In a bid to boost confidence, Mr Berlusconi on November 4 asked the IMF to monitor Italy's debt-cutting efforts.

With the ranks of Mr Berlusconi's majority thinning, opposition leaders are also trying to muster backing for a no-confidence vote to try to topple the leader, who has governed for more than half of the 17 years since he entered politics in 1994. Mr Berlusconi has faced only one such vote, which he survived, in December of last year.

Meanwhile, the German finance minister said Italy could resolve its problems by reducing its debt load.

German finance minister Wolfgang Schaeuble said Italy had "lost some confidence in markets", but could bounce back.

"Italy has to stick to what has been announced" in terms of budget cuts and growth measures, Mr Schaeuble said. "If Italy will deliver it, if Italy can reduce its debt, it has no problems."

Mr Schaeuble also reiterated that the ECB was independent and so "for good reason" was not expected to resolve the problems posed by the region's sovereign debt crisis.

Irish Independent

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