Berlusconi faces showdown vote on EU reform package

James Bone Rome

November 7, 2011

Silvio Berlusconi was clinging to power last night, hoping to force a showdown vote in the Italian Parliament so that he can look his enemies in the eye.

“I want to see the faces of those who are trying to betray me,” he told the right-wing newspaper Libero. Facing a backbench rebellion in a budget vote today, the Italian Prime Minister was under pressure to stand down to calm financial markets.

He made an unscheduled trip to Milan to consult his children and coalition partners amid rumours that he would resign within hours but then used his Facebook page to deny the rumours and later insisted that he would push for a confidence vote, which his Government looks likely to win after the Italian President asked that the crucial appropriations Bill be allowed to go through.

A planned abstention by the opposition and up to 40 rebels within his party, however, would show that Mr Berlusconi no longer commanded a majority. Opposition leaders said that if he refused to go in such circumstances, they would force a confidence vote to drive him out.

Mr Berlusconi told Libero that after the budget vote, he would ask for a confidence vote on the reform package he has promised to the EU and the European Central Bank.

The Italian Prime Minister had reportedly been told by his closest aides after returning from the G20 summit in Cannes on Friday that he had 72 hours to save his government — a deadline that expired last night.

If Mr Berlusconi is forced out, President Napolitano is expected to ask a technocrat, probably the former Italian EU Commissioner Mario Monti, to form a government to enact EU-mandated reforms. Mr Berlusconi’s Northern League coalition partners are insisting, however, that the country goes straight to the polls.

The dramas in Italy and Greece threatened to overshadow a meeting of eurozone finance ministers in Brussels last night to discuss enhancing the European Finacial Stability Facility.

In France, President Sarkozy staked his political future on a painful austerity package . The measures will strike at the heart of the Gallic way of life through a rise from 5.5 to 7 cent in VAT on restaurants, restrictions on health spending and an unprecedented move to reduce welfare benefits.

Aides presented the initiave as a do-or-die moment for the President, who is trailing François Hollande, the Socialist candidate, in the polls. But Benoît Hamon, a spokesman for the Socialist Party, said the plan would “dilapidate the French social model and cause economic and social disorder”. The measures, which were outlined by Prime Minister François Fillon, will result in a saving of €7 billion next year.

The President imposed a dose of austerity on himself and his ministers by freezing their salaries for as long as the French state is in the red. The aim of the French strategy is to maintain the country’s AAA rating, which allows it to borrow money at a relatively manageable interest rate. “If Nicolas Sarkozy loses the triple A, he’s dead,” said one of his advisers.

http://www.thetimes.co.uk/tto/news/world/europe/article3218767.ece

Berlusconi ‘to step down within hours’

James Bone Rome

Last updated November 7 2011 12:34PM

Silvio Berlusconi has made an unscheduled trip home to Milan for an apparent meeting with his family, but Europe’s longest-serving leader denied reports that he was to step down within hours.

The Italian Prime Minister has come under pressure from his own People of Freedom (PdL) party to step aside in advance of a budget vote in Parliament tomorrow that could prove that he has lost his majority.

Ten-year Italian/German government bond yield spreads soared to their highest since 1995, at 491 basis points, as the markets took aim at Italy after the political deal in Greece.

Mr Berlusconi, who has led Italy for half of the past 17 years, is understood to have been told by his closest aides after returning from the G20 summit in Cannes on Friday night that he had 72 hours to save his Government — a deadline that expires today.

But the veteran showman apparently has denied that he is about to step down.

“Rumours of my resignation are baseless and I do not understand how they started circulating,” Mr Berlusconi was quoted as telling his aides, according to the Ansa news agency.

Mr Berlusconi later posted on his Facebook page: “The rumours of my resignation are without foundation.”

Although he told a party meeting by telephone on Sunday that he was sure he could still muster a majority, his Interior Minister, Roberto Maroni, a member of his Northern League coalition partner, said later on television that he no longer had the votes.

Two prominent right-wing journalists, at rival publications, reported this morning that Mr Berlusconi’s resignation was imminent.

“Now I have live news. Berlusconi is quitting,” Franco Bechis, deputy editor of Libero, tweeted.

He added several minutes later: “The PdL had asked him to do it today, but he said ‘no’ because he had a private appointment in Milan. Either this evening or tomorrow morning!”

Giuliano Ferrara, Editor of Il Foglio and a friend of the Prime Minister, wrote in his online edition that Mr Berlusconi was about to step down. “That Berlusconi is about to make way is now clear. It’s a question of hours, some say even minutes.”

Mr Berlusconi, who headed for his villa at Arcore outside Milan, scene of his now-infamous “bunga bunga” parties, planned to return to Rome tonight.

The Government will almost certainly win tomorrow’s budget vote because Giorgio Napolitano, the President, has asked that the crucial appropriations Bill go through.

But Mr Berlusconi faces a planned mass abstention by the Opposition and as many as 40 rebels within his own party, which is likely to show that he no longer commands a majority.

Opposition leaders say that if he still refuses to step down they will present a formal motion of no-confidence this week or early next week.

If Mr Berlusconi goes, Mr Napolitano is expected to ask a technocrat, probably the former EU commissioner Mario Monti, to try to form a new government to enact EU-mandated reforms.

Gianni Letta, Mr Berlusconi’s chief of staff, was asked what would happen if the Government fell.

“There is the principle of the continuity of administration,” he said. “With the passage of one government to another, which is not what we are hoping for, the undertakings already assumed will continue.”

http://www.thetimes.co.uk/tto/news/world/europe/article3218767.ece

Would you trust this man to save us all from catastrophe?

Now Berlusconi faces his biggest test

After last week's Greek shenanigans, the future of the euro now depends on ability of Italy's premier to rein in his country's spending.

DAVID RANDALL

SUNDAY 06 NOVEMBER 2011

Tomorrow, the markets will start to place their bets on the likelihood of Silvio Berlusconi stopping the eurozone debt contagion spreading beyond Greece to lands that are too big to be rescued. Italy will begin, under International Monetary Fund supervision, to see if his government can rein in the spending that has already seen its debts reach 120 per cent of its entire GDP.

Thus will the stability of the eurozone be handed into the care of Europe's flakiest leader. It was not reassuring when, even after effectively being placed on probation by the IMF, Mr Berlusconi told Italian television: "Life in Italy is good. The restaurants are full. It's difficult to get a seat on a plane they're so busy; holidays are all booked up." At least in Athens yesterday there was a genuine sense of crisis, with solemnity to match.

Mr Berlusconi may feel differently on Tuesday, when the first of the votes on reforms to which he is now committed takes place, but just a few days ago he arrived at the G20 in characteristic fashion. His overcoat draped over his shoulders, he stepped from his limousine, and was soon caught by the cameras appraising the contours of Argentina's President, Cristina Fernandez de Kirchner, with a roué's smile. But, by the meeting's end, he'd been told with more force than ever before that he tends to spend far too much time studying the wrong kind of figures.

From tomorrow, his survival (and possibly that of the eurozone as we know it) will depend on only one vital statistic: the amount by which he can reduce Italy's debt. And to make sure he – or, if he falls, his successor – sticks to the task, an IMF monitoring mission will be invigilating Italy's efforts to reduce spending.

Yesterday, it was politics as usual in Rome: tens of thousands of demonstrators calling for his resignation, and Mr Berlusconi's routine refusal. He has promised a confidence vote on new legislation sought by the European Union to shore up Italy's economy. The measures include a plan to sell government assets, tax breaks to encourage employment for the young, and getting women back into the workforce. The legislation would also liberalise store opening hours and open closed professions.

The stakes for the country, the eurozone and the world economy could hardly be higher. Italy has debts of €1.9trn. It is the third-largest economy in the zone, and, unlike Ireland, Portugal or Greece, is far too large to bail out. If it defaulted, the basis of Western finance would be in shreds.

Mr Berlusconi, who recently rejected a proferred IMF line of credit, has been promising effective reforms for years, and insisting Italy was on track to rein in its public debt. He claimed his parliamentary majority was strong enough – despite mounting talk of defections on his own side – to pass legislation in the coming weeks containing an initial batch of reforms to sell off government property and privatise some local public services.

Among reforms are a rise in the pension age to 67 by 2026, a loosening of job protection, and new rules allowing civil servants to be put on so-called Cassa Integrazione, mandatory stand-down at minimum pay.

But the Italian Prime Minister, a born survivor incessantly besieged by litigation largely of his own making, has failed to deliver, and market confidence has withered in recent weeks. On Friday, Italy's benchmark 10-year bond yield jumped 0.32 of a percentage point to 6.43 per cent, indicating a surge in investor worries about the country, and, in particular, Mr Berlusconi's credibility.

The IMF chief, Christine Lagarde, said she hoped a quarterly monitoring mission would start by the end of November to check that the reforms Mr Berlusconi promised in a letter to the EU last month are implemented.

In Greece, the more pressing eurozone basket case, the political gamesof chicken continued yesterday. Prime Minister George Papandreou won an early-morning confidence vote in the socialist-led parliament on a pledge that he was willing to step aside and form a cross-party caretaker government. But yesterday afternoon the country's conservative opposition leader insisted on his demand for immediate elections, snubbing a government offer to form a power-sharing coalition. The centre-right New Democracy party leader, Antonis Samaras, described Mr Papandreou as "dangerous for the country", but did not say whether he would attend any negotiations with the government. Yesterday morning, Mr Papandreou met President Karolos Papoulias. He said at the meeting: "I am concerned that a lack of co-operation could trouble how our partners see our desire to remain in the central core of the EU and the euro." The country's creditors have threatened to withhold the next critical €8bn loan instalment until last week's new debt deal is formally approved in Greece.

The country is surviving on a €110bn rescue-loan programme from eurozone partners and the IMF. It is currently finalising a second mammoth deal: to receive an additional €130bn in loans and bank support, with banks agreeing to cancel 50 per cent of their Greek debt. His colleagues insist any new government would need until late February to secure the second deal, and have warned that a snap election could scuttle it. They insisted Mr Papandreou's offer to step aside was sincere, and called on Mr Samaras to reconsider his party's position urgently.

"If Mr Samaras were willing to back a new government, the Prime Minister would resign today," said Yiannis Magriotis, a deputy public works minister. Political analyst Ilias Nicolacopoulos argued it would be difficult for Mr Samaras to avoid the coalition talks altogether – even if he remains reluctant to share power with Mr Papandreou. "There will be a tough game of poker to determine what type of government can be formed," he said.

The extent to which events in Rome and Athens rendered the G20 summit a fringe production was illustrated on Thursday evening, when journalists dropped what they were doing in the basement of Cannes' Palais des Festivals to watch a live transmission from the Greek parliament in Athens, where Mr Papandreou was speaking.

The most likely way the eurozone could still get additional financing is through a special account under the auspices of the IMF, into which individual countries could make payments. Those investments in turn could then be used to boost the eurozone's own bailout fund, the €440bn European Financial Stability Facility. That way, countries such as the United States, which think Europe should pay for its own financial problems, wouldn't have to put any money in. And countries such as Russia and Brazil, which have expressed interest in investing in the eurozone, could.

But Germany's Chancellor Angela Merkel and Ms Lagarde said not a single country at the meeting made a firm commitment to participate.

Greece's long week

Tuesday Greece's Prime Minister, George Papandreou, announces referendum of the Greek people on the bailout package which says that, in return for austerity measures, banks owed money by Greece will accept losses of 50 per cent. The announcement causes surprise in Greece, and outrage in Brussels, where it is interpreted as a betrayal of assurances given. Market anxiety increases.

Wednesday Bailout funds of €8bn promised to Greece are postponed pending the holding of the referendum. There is growing market anxiety over Italy's stability after the cabinet fails to agree on a package of reforms.

Thursday Beijing opts to reject the eurozone appeal for investment in the European Financial Stability Fund. Mr Papandreou begins negotiations with the opposition on the formation of a coalition government, ahead of a parliamentary confidence vote on Friday night. Mr Papandreou causes confusion when he suggests that he may be open to cancelling the planned referendum.

Friday Greece drops idea of referendum. The G20 summit in Cannes is dominated by eurozone issues. Attendees commit to boosting the IMF's funding. The IMF and European Commission demand faster action on pension and labour market reform from Italy.

Yesterday Mr Papandreou narrowly survives a parliamentary confidence vote at a late-night parliamentary session. He promises to continue negotiations form a coalition government.

The future: The damage could dwarf even Lehman Brothers' collapse

Short term

George Papandreou, having survived a confidence vote on Friday night, must form a new coalition government. This could take about a week, but is already under threat from opposition party calls for snap elections. Such a move would inevitably delay government approval of the terms of the country's latest international bailout package, worth €130bn. Without those funds Greece will almost certainly default on its existing loans and go bankrupt next month. Italy's borrowing costs remain unsustainably high and the contagion effect of any further disasters in Greece could mean that Silvio Berlusconi will have to rethink turning down the offer of an IMF loan.

Medium term

If Greece is bankrupted, its membership of the euro must surely come to an end. The cost of borrowing for other countries would soar, which would almost certainly lead to yet another banking crisis – only, this time, one with the potential to dwarf the catastrophic effects of the Lehman Brothers collapse in 2008. Already it is unclear how Italy is going to refinance €300bn next year, though the IMF is sending monitors to Rome to issue quarterly updates on the country's economic progress. Spain will continue to slash public spending, particularly if, as expected, the PP opposition party wins this month's election. The party has promised to restore Spain's top credit rating, which will require the acceleration of spending cuts.

Long term

Eventually, France will have to stop providing so much money to the bailout funds. Its top credit rating would ultimately go, the consequence being that the European Financial Stability Facility's lending capacity would fall by at least one-third. If the rescue fund drops sharply, the worst-hit countries would lose much of the one source of funding that is keeping them afloat. Should confidence in the French economy fall, that would leave just the biggest, most important eurozone country left in the crosshairs of the crisis: Germany.

http://www.independent.co.uk/news/world/europe/now-berlusconi-faces-his-biggest-test-6258010.html

In God’s name, go!

November 4, 2011 11:45 pm

In a Group of 20 summit that fell well short of what was needed, the world’s most powerful leaders were powerless in the face of the manoeuvres by two European premiers: George Papandreou and Silvio Berlusconi.

The similarities between the two prime ministers are striking: both men rely on a thin and shrinking parliamentary majority and they are both squabbling with their own ministers of finance. Most importantly, they both have a dangerous tendency to renege on their promises at a time when markets worry about their countries’ public finances. There is, however, one important difference: having reached €1,900bn, Italy’s public debt is so high that its potential to destabilise the world economy is way above that of Athens.

The good news, of course, is that Italy is still a solvent country. However, the interest rate on its debt is becoming ever less sustainable. The spreads between Italian and German 10-year bonds have doubled over the summer. Yesterday, they reached a euro-era record of 463 basis points and would have probably been higher if the European Central Bank was not buying Italian bonds. Although Rome can sustain high interest rates for a limited time period, this process must be halted before it becomes unmanageable. Next year Italy has to refinance nearly €300bn worth of debt. As the eurozone crisis has shown too well, once spreads have risen, they are extremely difficult to bring down.

The most troubling aspect is that this is happening even as Italy has agreed, in principle, to the structural reforms recommended by Europe and the G20. That the International Monetary Fund will monitor Rome’s progress can only be a good thing. However, this risks being undermined while the country retains its current leader. Having failed to pass reforms in his two decades in politics, Mr Berlusconi lacks the credibility to bring about meaningful change.

It would be naive to assume that, when Mr Berlusconi goes, Italy will instantly reclaim the full confidence of the markets. Clouds remain over the political future of the country and structural reforms will take time before they can affect growth rates. A change of leadership, however, is imperative. A new prime minister committed to the reform agenda would reassure the markets, which are desperate for a credible plan to end the run on the world’s fourth largest debt. This would make it easier for the European Central Bank to continue its bond-purchasing scheme, as it would make it less likely that Italy will renege on its promises.

After two decades of ineffective showmanship, the only words to say to Mr Berlusconi echo those once used by Oliver Cromwell.

In the name of God, Italy and Europe, go!

Copyright The Financial Times Limited 2011.

Peter Brookes Cartoon for Thursday 27th October 2011

Berlusconi paid millions to glamorous women

James Bone Rome

Last updated October 27 2011 10:26PM

Silvio Berlusconi was paying millions of euros to glamorous women even before his 2009 split with his wife, new bank details reveal.

Prosecutors in Florence have traced €2.7 million in payments to women, including €220,000 to ex-Miss Lithuania Rasa Kulyte, from the billionaire Italian Prime Minister’s private bank account, between January 2007 and June 2008.

Other payments included €135,000 to Russian model Raissa Skorkina; €275,000 to actress Isabella Orsini; €150,000 for Virginia Sanjust, a former television presenter who is related to the Tuscan aristocrat who rented his hilltop estate to David Cameron and his family this summer.

Barbara Matera, who received €95,000, later became a Euro MP.

Mr Berlusconi also spent €337,000 at a Milan jeweller’s on gifts for his female friends.

In all, the Prime Minister, Italy’s third richest man, paid out €17 million over the 18-month period.

The money came from the same account 129 at the Monte dei Paschi di Siena bank from which Mr Berlusconi made some €34 million in payments last year.

The payments were revealed a day after Mr Berlusconi, 74, presented an economic reform package to fellow European leaders at a summit in Brussels. The plan will see the state retirement age raised from 65 to 67 and make it easier for employers to fire workers.

There has been increasing speculation as to whether Mr Berlusconi’s coalition will survive long enough to implement the ambitious market reforms, with unions promising to defend workers’ rights.

After dodging the worst of the financial crisis in recent years, Italy has moved to the centre of the debt crunch this year as its bond yields soared to near unsustainable levels.

Only intervention by the European Central Bank has prevented them from rising out of control.

Investors have fretted about Italy’s chronically sluggish growth and the sustainability of its €1.9 trillion debt, which at 120 per cent of GDP is second only to Greece’s in the euro zone.

Italy’s Downfall Silvio Berlusconi’s fecklessness and political cowardice have endangered the entire euro zone. He must go now

October 27 2011 12:01AM

Italy would be well rid of Silvio Berlusconi. It is not simply the tawdry sexual escapades, the whiff of corruption or the crass boorishness of his sexist remarks that have tested the patience of his embarrassed compatriots. It is his abject failure, after a total of eight years in office, to bring about any meaningful reform to Italy’s sclerotic body politic, his repeated failure to carry through promises and his mismanagement of Europe’s third-largest economy that have destroyed his political credibility and now pose an existential threat to all Italy’s partners in the eurozone.

The exchange of weary glances between Angela Merkel, the German Chancellor, and President Sarkozy when asked at the emergency summit on the euro whether they trusted Mr Berlusconi said it all. Europe is heartily sick of this buffoonish Prime Minister, whose insouciance, irresponsibility and political cowardice have so exacerbated the present crisis. Had Italy taken decisive steps to reduce its colossal debt, to carry through urgent tax and budgetary reforms and to stand firm in the face of trade union obstructionism and the lobbying by special interests, the haemorrhaging of confidence in the eurozone’s future might have been stemmed. Instead, Mr Berlusconi’s prevarication and evasions, his refusal to accept responsibility or play by established rules, have brought Italy to the brink of financial disaster. And if Italy cannot be saved, nor can the entire euro experiment.

There were hopes yesterday that Mr Berlusconi, squeezed between the demands of France and Germany for a coherent plan for fiscal reform and the opposition to any retrenchment by his opportunistic Northern League coalition partners, would be forced from office within days. President Napolitano could then have appointed a stop-gap government of technocrats to pass urgent reforms. But at the last moment Mr Berlusconi did a deal with Umberto Bossi, the maverick leader of the Northern League, which will allow him to offer a “letter of intent” to his impatient EU partners while avoiding any specific commitments. In return, the embattled Prime Minister is reported to have promised to resign within the next month or two and call a snap election in the spring to exploit the disarray in the centre-left Opposition.

This is the worst of all worlds. Without any timetable for reform and domestic wrangling precluding the austerity measures so urgently needed, the European Central Bank will not be permitted to buy Italian bonds on the scale needed to avoid the country being overwhelmed by repayments on its massive debt pile. And Italians, instead of being honestly confronted with the desperate state to which their blundering Government has reduced them, will be sidetracked into election politics and the scapegoating of their EU partners for their own predicament.

There should be no doubt about the challenges now facing Italy or the failure by Mr Berlusconi’s administrations, in 2001-06 and from 2008 until now, to meet them. Italy is one of the most indebted nations in the world, owing €1.9 trillion. This is equal to 120 per cent of its GDP. The three main credit rating agencies have all downgraded Italy recently, and yesterday the borrowing costs on short-term bonds rose to 3.53 per cent, the highest level in three years.

The sensible, but insufficient, measures proposed by Giulio Tremonti, the Economy Minister, include the opening of closed professions, cutting red tape and raising revenue through privatisations and a new wealth tax. All have been delayed by a prime minister scared of voter reaction. Two months ago this newspaper gave warning that Mr Berlusconi’s fecklessness was turning a localised problem into an emerging disaster. That disaster has now engulfed Italy and its neighbours. His best service now to his country would be to resign forthwith.

http://www.thetimes.co.uk/tto/opinion/leaders/article3207406.ece