Italian elections: Il Cavaliere goes all-in

With the Italian elections only three weeks away, Silvio Berlusconi has gone all-in with a number of big electoral pledges. The most eye-catching are:

• Refund Italians for a levy on first homes (IMU) re-introduced by Mario Monti's technocratic government. Berlusconi had already pledged to scrap the tax, but has now raised the stakes further. 

• Scrap Italy's Regional Tax on Productive Activities (Irap, which is levied on businesses) within the next five years.

• Launch a full tax amnesty.

• Finalise a bilateral agreement with Switzerland allowing the Italian government to tax Swiss-based financial activities of Italian citizens. Berlusconi claims this would grant a one-off revenue of €25-30bn, and some €5bn a year.

• Scrap public financing of Italian political parties.

• Halve the number of parliamentarians (there are currently 630 MPs and 315 Senators).

• Cut public spending by a total €80bn in five years.

Responses have been mixed. After comparing Berlusconi to the 'Pied Piper of Hamelin', Mario Monti has this time likened him to a "snake charmer" - a clear reference to Il Cavaliere's poor record when it comes to keeping electoral promises. Giulio Tremonti, who served as a Finance Minister several times under Berlusconi (although the two did not always get along particularly well, see our blog from August 2011), also noted that the tax refund pledged by Berlusconi would create "objective problems" with Italy's public finances. Incidentally, Tremonti is not a great fan of the agreement with Switzerland either.

But there is only one reaction Berlusconi is interested in at this point in time: the Italian electorate's. And his populist rhetoric seems to be paying off on that front. According to the daily opinion polls carried out by Tecnè for Sky TG24, Berlusconi's PdL party continues to gain ground and is now on 20.4%. Crucially, these polls also show that the gap between the centre-left coalition led by Pier Luigi Bersani and Berlusconi's centre-right coalition has narrowed to only 4% (the two blocs are on 32.9% and 28.9% respectively). Tecnè will tomorrow release the first survey conducted after the big promises we listed above. We wait with interest.

In the meantime, the Italian stock market and borrowing costs seemed to have begun pricing in the potential for a Berlusconi victory - along with the broad added uncertainty of a close election and the recent bailout of Banca Monte dei Paschi di Siena. The FTSE MIB fell 4.5%, while borrowing costs edged up to 4.47%. With another three weeks before the elections, we could yet see a few more days like this.