Pressure mounts on Italy's Burlusconi to quit
Tuesday, November 8, 2011
ROME (AP) — Italy became the latest target in Europe’s financial crisis Monday, as soaring borrowing rates intensified pressure on Premier Silvio Berlusconi to resign and let a new government reform the country’s spendthrift ways.
Berlusconi batted away reports that he was considering stepping down in favor of early elections, saying they were “without foundation.”
But the prospect of financial disaster was real because of Italy’s huge debts and slow growth. Unlike Greece, Ireland and Portugal — the three countries that Europe has already bailed out — Italy’s economy could be too large to rescue.
Investors want the government to quickly pass measures to boost growth and cut debt. But defections from Berlusconi’s coalition government mean he no longer commands enough loyalty to pass the reforms.
Increasingly, Berlusconi is himself being seen as the problem.
If Berlusconi should resign or lose a confidence vote, President Giorgio Napolitano would decide whether to call early elections, or name a government of technocrats rather than politicians. The most widely discussed name to lead a technical government is Mario Monti, the former EU competition commissioner who once blocked General Electric’s takeover of Honeywell.
The opposition center-left has long demanded the resignation of Berlusconi, citing sex scandals, criminal prosecutions and legislative priorities it says are aimed at protecting his own business interests rather than those of the country. However, it has failed to come up with a leader who can energize the base and create a credible program, leaving the opposition divided and rudderless.
The ultimate fear is that Italy cannot pay for its (euro) 1.9 trillion ($2.6 trillion) debt and need international help. Europe would struggle with a bailout that large, meaning a default that could break up the 17-nation eurozone and drag down the global economy.
During a G-20 summit last week, Berlusconi had to ask the International Monetary Fund to monitor the country’s reform efforts, a humiliating step for the eurozone’s third-largest economy.
The yield on Italy’s 10-year bonds jumped another 0.42 of a percentage point Monday to 6.67 percent, its highest level since the euro was established in 1999. That is drawing uncomfortably near the 7 percent threshold that forced both Ireland and Portugal to accept bailouts. As yields rise, governments must devote more of their national budgets simply to paying interest costs, creating a vicious circle of debt.
When traders thought early Monday that Berlusconi might resign, those borrowing rates eased. But later in the day, when it was clear the 75-year-old would not leave willingly, rates shot up again, reflecting market fears that he is not the leader who can turn Italy around.
“The leader and his country are in danger of taking the rest of Europe, if not the world, into economic hell,” said Louise Cooper, markets analyst at BGC Partners.
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