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Thursday, August 04, 2011

Berlusconi's Speech: The Day After

Italian Prime Minister Silvio Berlusconi's speech in the Italian parliament has attracted almost unanimous criticism, if one excludes politicians from his coalition and a couple of newspapers either close to his party or owned by members of his family. His 'nothing-to-see-here' approach was immediately slammed by the opposition in parliament, with the always colourful Antonio Di Pietro - a former judge now leader of Italia dei Valori (Italy of Values, see picture), a centre-left party - memorably saying,
"Dear Silvio, you're either Alice in Wonderland or history's biggest liar."
Similarly, the leader of the main opposition party, Pier Luigi Bersani, said,
"Mr Prime Minister, either you've read the wrong speech to us, or you're in the wrong parliament."
As regards the Italian press, all the main newspapers today feature comment pieces expressing disappointment at Berlusconi's declarations. An editorial in the liberal daily Il Corriere della Sera argues,
"The house keeps burning without anyone grabbing a fire extinguisher...[Berlusconi’s] decision to speak after the markets’ closure could make people expect even some sensational surprise. But nothing. Not even the smallest admission of having done something wrong, despite the country struggling in the quagmire of the crisis."
A comment piece in La Stampa calls Berlusconi's speech "the umpteenth replica of the same script", warning,
"Yesterday’s debate in parliament has been unanimously considered as disappointing…If today the markets drag Italy further down, either Berlusconi says what he intends to do to save the country, or he risks leading it to shipwreck together with him."
In Italy's main business daily Il Sole 24 Ore, editorialist Stefano Folli writes with sophisticated irony,
"There’s a famous ironic aphorism by Bertolt Brecht saying, ‘when government doesn’t agree with the people, it’s time to change the people’. Yesterday, in parliament, there was a moment when [Berlusconi] seemed to echo Brecht. In substance, he almost said: when Italy doesn’t agree with the markets, it’s time to change the markets. This because our system is solid and reliable; and who knows why the markets don’t realise that."
He goes on,
"If our judgment were to be based only on yesterday’s speech and mediocre parliamentary debate, we should conclude that the worst is just around the corner. On the markets and at home. But who knows? Sometimes good news follow a tortuous path."
Well, the day after Berlusconi's speech the good news for Italy could be the fact that its borrowing costs on ten-year bonds have slightly decreased and are now below 6%. Despite acknowledging the ongoing state of uncertainty, an article in Libero - a newspaper notoriously close to Berlusconi's positions - notes,
"The Prime Minister's speech in both houses of parliament yesterday was not useless. For a start, it told the markets that the government is there. With its problems and its troubles, but it's there and knows its country well."
However, the markets just work differently, and our view is that they are reacting moderately well to the fact that the ECB is today widely expected announce a delay in its increase of interest rates following its monthly meeting. In addition, EU officials yesterday suggested that the ECB could even resume its bond-buying programme after 18 weeks, something which the markets have been clamouring for.

In other words, the impression is that, once the short-lived positive effect of these two factors vanishes, the lack of substance of Berlusconi's speech may not go unpunished by the markets.

Update 12.40:
At lunchtime, Italy's borrowing costs on ten-year bonds are again over 6% and are only 8 basis points (0.08%) lower than Spain's.

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