Not In Safe Hands

Update 16:10 - It looks like two MPs from Berlusconi's party have defected to the Christian-Democrats' group in the lower house of the Italian parliament. No good news for Silvio.

If the eurozone can "do without" Greece, as French Europe Minister Jean Leonetti said in a radio interview this morning, the same is certainly not true for Italy. Well, in light of what is reported in the Italian press today, the eurozone's future is not in safe hands. Italian Prime Minister Silvio Berlusconi (in the picture, believe it or not) yesterday called an emergency cabinet meeting with a clear aim: endorsing some of the measures outlined in last week's letter to EU leaders in order to arrive in Cannes with something concrete to show to Italy's G20 partners.

No big surprises in terms of what has been agreed. The new measures include plans to liberalise certain professions and services at the local level. A sell-off of state assets is also a part of the deal, along with tax reliefs for private capitals investing in big infrastructure projects. As expected, the wealth tax has been left out once again. The controversial rules to make dismissals of permanent employees easier and the increase in retirement age didn't make it in, at least for the moment. But the real significance of yesterday's emergency cabinet meeting is something else.

In fact, according to several Italian papers, the meeting turned into a no-holds-barred showdown between Berlusconi and Italy's Economy Minister Giulio Tremonti. Apparently, everything started when Italian Economic Development Minister Paolo Romani lost his patience and told Tremonti, "Stop it, speak clearly and say that you want to send [Berlusconi] home."

According to Il Corriere della Sera, the exchange went something like this:

Tremonti: "I'm just saying that disasters will happen on the markets on Monday if you, Silvio, remain where you are and don't take a step back. Like it or not, in the eyes of both Europe and the markets the problem is you."

Berlusconi: "No, the problem is you. You've spent the last three years speaking ill of your country and your Prime Minister around the world."

La Repubblica adds some more details,

Tremonti: "Had you let me do my job, instead of putting spokes in my wheels, perhaps we wouldn't be in this situation now."

Berlusconi: "Had they let me be the Prime Minister, instead of putting spokes in my wheels, perhaps you wouldn't be the Economy Minister now."

Tremonti: "I can leave right now, if I'm of no use."

Wow!

Crucially, the fact that the new emergency measures were eventually adopted as amendments to the existing austerity packages (as Tremonti wanted), and not in the form of a proper legislative act (as in Berlusconi's intentions), is possibly yet another sign of how Il Cavaliere's leadership is getting wobblier by the day.

In addition, six MPs from Berlusconi's party yesterday published a letter urging the Italian Prime Minister to resign (the full version is available here). The letter reads,

"You are aware that this government is unfit to carry out this difficult task [taking Italy out of the crisis], also in light of the irreconcilable strategic divisions undermining it...Therefore, be supportive of a new political phase and a new government."

The votes of these MPs could be decisive for the survival of the Italian government, especially since Berlusconi, in a desperate bid to reassure EU leaders (and the markets), has already announced that each of the measures agreed yesterday will be put to a vote of confidence in the Italian parliament.

But arguably the hardest blow to Berlusconi came from his former ally and co-founder of his party, Gianfranco Fini, who's also the speaker of the lower house of the Italian parliament. Yesterday, in a TV interview, Fini said that Berlusconi had turned into "the main puppet" in Italy's political theatre, adding that the weakness of the measures adopted during the emergency cabinet meeting was due to Berlusconi's "inability to rule."

No surprise then that, despite the new measures and the ECB continuing its purchases of Italian debt, Italy's borrowing costs showed no signs of decreasing. The interest rate on Italy's ten-year bonds touched 6.4% this morning. The infamous 7% threshold, which proved a point of no return for Greece, Ireland and Portugal, now looks worryingly close.

G20 finesse

An interesting feature in today's Guardian showcased at the reaction of correspondents around Europe to the world leaders at the G20.

Fabio Cavalera from Corriere della Sera made a good point that, "Now we will have to check if the political agreements made here will be transformed into legal agreements. The summit also showed the end of the era. Emerging countries like China, India and Brazil are much more important than old countries like France and Italy."

Marc Roche for Le Monde wrote, "It was a particular success for the French and German approach to the crisis. They put on the agenda the fact that you can't just print money to fund your budgetary hole like the British and Americans are doing...The summit has highlighted the fractures between the Anglo-Saxon leaders and the continental leaders."

While there has been a great deal reported on divisions between EU leaders on the merits of financial regulation vs fiscal stimulus, there is now more media coverage pointing to the emergence of a G2 - highlighting that, in the context of the G20, the US and China are the two countries that really matter in reaching global agreement on issues - they are an "elite partnership".

This isn't how Eduardo Suarez at El Mundo sees things, however. He said: "It was funny to see all the journalists leave his [Brown's] press conference before it was over to get to Sarkozy's. I think the summit has shown Sarkozy and Obama are the important leaders here."

Not sure about that. The agreement finally reached by the G20 on banking secrecy and tax havens was reportedly that they would "take note" of the OECD's list of rogue offshore tax havens, rather than "endorse" the list, as Sarko wanted.

Sarko seemed to be targeting Hong Kong and Macau, outside the transparency framework set up by the OECD, of which China is not a member.

You might also remember last year's diplomatique faux pas when Sarkozy spectacularly soured relations with China over his decision to meet with the Dalai Lama, causing China to postpone its summit with the EU, for the first time in the history of such meetings.

Perhaps it was a combination of these two slights, but the Chinese actually refused to turn up to a meeting with the French until a joint statement was issued, moderating France's position on Tibet and reaffirming its commitment to the "One-China" policy. Even then, it took the intervention of Barack Obama to seal a deal on tax havens, requiring the diplomatic finesse that seemed to otherwise elude President Sarkozy.