Italy: Bersani failing to form government wouldn't automatically mean new elections

There were rumours of a further postponement until Good Friday, but Italy's centre-left leader Pier Luigi Bersani has confirmed he will meet President Giorgio Napolitano tomorrow and report on the outcome of coalition talks with other political parties. The truth is talks haven't gone particularly well. At the moment, Bersani doesn't seem to have the numbers to win a preliminary vote of confidence in the Italian Senate - absent which the new government wouldn't be allowed to enter office.  

Clearly, Bersani's failure to form a government would make snap elections more likely. But there is still some room left for negotiations. For the moment, we have tried to imagine the content of the meeting between Bersani and Napolitano (providing no eleventh-hour U-turns occur).

Scenario 1: Bersani admits he doesn't have the numbers and asks for more time to strike a deal 
This is fully possible, and it shouldn't be a big problem for Napolitano to give Bersani more time for a second round of talks. However, it is unclear how much an extension of talks would change if none of the big parties moves from its current position.

Scenario 2: Bersani admits he doesn't have the numbers, but asks to be sworn in anyway
Bersani's reasoning here would be that, when the time to vote the confidence to the new government comes, some Senators (mainly from the Five-Star Movement) would break ranks and back him. This is a huge gamble, though. At the moment, even assuming that Monti's Senators all vote the confidence to the new government, Bersani would still need at least 15 Senators to reach the minimum required majority of 160.

As such, Napolitano may not want to run the risk - and here is why. When a new government is sworn in, it must win a vote of confidence in both houses of the Italian parliament within ten days from the oath before it can enter office. If it fails to do so, it stays on as caretaker while the Italian President decides what to do next. But Napolitano is quite keen to keep Monti as caretaker instead - so he will probably only agree to swear in a government which can realistically win the vote of confidence.

A boring (but necessary) caveat before we move on to Scenario 3. It is possible for Italian Senators to leave the chamber before a vote, so that they are 'absent' when the roll is called. Absent Senators don't count, meaning that the required majority goes down. Now, Lega Nord leader Roberto Maroni has hinted at the possibility of his and Berlusconi's Senators leaving the chamber en bloc before the key confidence vote to a hypothetical new centre-left government - allowing Bersani to win the vote.

Of course, Maroni made clear this could happen only if "certain conditions" were met - including an agreement to elect a man close to the centre-right as the next Italian President next month. But this could potentially be a way out of the impasse.

Scenario 3: Bersani throws in the towel and hands his mandate back to President Napolitano
This wouldn't automatically mean new elections - which, in any case, can only be called by the new Italian President when he enters office in mid-May. Napolitano would have to start a new round of talks and then decide what to do. As we explained in previous blog posts, the most likely outcome would be the Italian President proposing a temporary 'national unity government'.

The new cabinet would be led by someone from outside of 'traditional' party politics (the word 'technocrat' seems to have gone out of favour in Italy these days) - but the ministers could indeed come from political parties. It is unclear whether Berlusconi's party would grant its support, but this solution may have some chances of winning the Five-Star Movement's backing. This 'national unity government' would pursue a clearly limited agenda, and pave the way for early elections - perhaps as early as next year, but with a new electoral law.

It's all very much up in the air in Italy at the moment, but in case of a definitive breakdown of talks everyone will suddenly be reminded of which country should be the eurozone's real concern.  

Italian elections: And now for the warnings from around Europe - stay the course, or else...

Responses to the extraordinary results of the Italian elections have started to come in from around the rest of Europe, the most interesting of which we include below. Predictably, an instant raft of warnings has come out  from Northern Europe and Brussels.

Kicking off is German Foreign Minister Guido Westerwelle who argued that:

“It is necessary for Italy – but also because Italy is so important – for the whole of Europe for a new strong and capable government to be formed as quickly as possible. The politically responsible people in Rome recognise that Italy needs a continuation of a policy of reform, of consolidation, one which is able to secure the confidence of the citizens and the markets.” 

If only the the "responsible people in Rome" were in charge of selecting a new PM. German Economy Minister Philipp Rösler also emphasised the need to stay the course, irrespective of government:

“I could have imagined a better outcome for the reformers in Italy. There is however no alternative to the previously adopted path of structural reforms.” 

As did the CDU/CSU’s parliamentary faction leader Michael Grosse-Brömer:

“The reform path of Monti has to be continued consequently.”

Not everyone in Germany agrees though, with SPD MP Klaus Barthel (very much on the left of the party) telling Handelsblatt that:

“Mrs Merkel delivered enough substance to Berlusconi’s nationalist slogans. Her advances to the teutons [i.e. traditional Germanic values] bring perhaps one or two votes [at home] but come back negatively a million times over from the neighbours.” 

Dutch Finance Minister and eurogroup head Jeroen Dijsselbloem told television broadcaster RTL-Z that:

"Having a stable government in Italy is important for Europe. In that respect, the outcome does not make us cheerful… I assume that, no matter what a new government in Italy looks like, it will live up to the agreements that have been made".

Over in Austria, Chancellor Werner Faymann gave a pretty cautious response:

“The euro remains stable even when in some countries it is not clear yet who will build the government.”

Meanwhile, over in France Finance Minister Pierre Moscovici said that while the result "creates problems", it would not undermine the single currency, while the Minister for Industrial Renewal, Arnaud Montebourg, claimed the result showed that "Italians do not agree with market imposed policies".

Belgian Foreign Minister Didier Reynders reacted as saying that:

"I fear for a deadlock during a certain period… If it now comes to a standstill this can be very dangerous, also for financial markets".

He should know a thing or two about political deadlocks...

Meanwhile, the European Commission (whose favoured candidate got a bit of a drubbing), also issued a hilariously contradictory response, claiming that "We clearly hear the message of concern expressed by Italian citizens”, while also arguing that Monti's reform and fiscal-consolidation agenda were necessary to "underpin everybody's confidence" in the Italian economy, and the Commission "expects compliance".

Right...

Luxembourg's Foreign Minister Jean Asselborn was clearly unhappy, arguing that:

"This is a scenario that no one had wished for... This is not just bad for Italy, but also a nightmare for Europe." 

Spanish Finance Minister Jose Manuel Garcia-Margallo was also alarmist, warning that there was "extreme concern" about the financial consequences, adding that "This is a jump to nowhere with positive consequences for nobody”.

Finally, the most forthright response has to go to Hans van Baalen, leader of Dutch Prime Minister Mark Rutte's VVD party in the European Parliament, who argued that:

“Italians must elect who they want to elect and must bear the consequences when they elect clowns."

Bild asks "Will the Italians destroy our euro"?

As always Bild Zeitung cuts to the chase. Its headline on the Italian Elections in today's edition reads "Grand Confusion! Italians elect government of chaos". For good measure, the online version adds "Will they now destroy our euro"? The "our" in that sentence won't go down well in all corners of Europe...

Of course the situation is very much developing, but this has the potential to make the relationship between Rome and Berlin far more complicated, and further entrench the eurozone North-South stalemate (as we noted in our pre-election briefing). The subsequent response of the German media and public opinion will be very interesting.

Italian elections: Early projections point to Brussels’ and Berlin’s worst nightmare

Update 18:32: the projections for the Lower House are starting to come in and it'll be a close one. The first RAI projection has Bersani's centre-left coalition on 29.1%, Berlusconi's coalition on 28.6% and Beppe Grillo going even stronger than in the Senate, at 26.3%. Again, the Five Star Movement - the party that has toyed with pretty clear enti-euro rhetoric - is set to become Italy's largest single political party (don't say we didn't warn you). 18 to 24 year olds are allowed to vote in the Lower House elections, whilst 25 is the threshold for the Senate elections, which possibly explains the additional Grillo bounce.

Update 17.50: It's not looking any better. These elections now look like producing a hung senate (though much can still happen). This projection is from La Repubblica:

If this holds, none of the coalition arrangements discussed before the elections will achieve a majority in the Senate. Under this scenario, Berlusconi's centre-right coalition would win 123 seats, Bersani's centre-left coalition 104, Beppe Grillo's Five-Star Movement 58 and Mario Monti's pro-reform bloc only 16.

So there are basically three options: A national unity government (if Bersani, Berlusconi and Monti join forces - could be possible if leading to fresh elections soon afterwards), a sensational Bersani / Grillo coalition (unlikely) or re-run election within 2-3 months. If we have re-run elections, there will be a lot of pressure to change the electoral law beforehand to avoid a similar stalemate to that which could occur now. For that, of course, you need a majority in both houses...

As we've said repeatedly over the last year: this one will be very complicated and uncertain...

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The first projections are in. And the results are the stuff of nightmares if you sit in Brussels or Berlin.

Now, the thing to remember is that seats in the Senate are allocated on a regional basis so overall support nationwide doesn’t necessarily translate into a corresponding number of seats. But the projections so far show the following:

• Monti – the darling in Berlin and Brussels – is taking an absolute hammering
• Under the current projections, Berlusconi could prevent a centre-left majority and there could be a hung Senate.
• Italians are coming out in droves to vote against austerity, with Beppe Grillo’s pro-euro referendum, sort-of-anti-euro Five Star Movement being the largest individual political party in half of the projections so far, and third with respect to Coalition arrangements (Grillo won’t join any coalition arrangements)

All eyes are now on the region of Lombardy, which, given the huge number of senators it provides, is likely to be crucial to the fate of these elections.

The vote count for the lower house trails the Senate count.

Can't wait for Italian election results? Here's a timeline

Elections in Italy are always spread over two days. Yesterday, about 55% of Italians cast their vote - marking a sharp 7.4% decline in turnout compared to the first day of the previous general elections in 2008. Turnout was generally much higher in the North than in the South of the country.

Polling stations will close today at 2pm GMT. How long will we have to wait to know the results? Here's an approximate timeline, although a lot will depend on how speedy the counting is (all times are GMT):

2pm: Polling stations close, and the first exit polls are released. Exit polls can give a first idea, but clearly have to be taken with a pinch of salt (they were quite far from the final outcome in the 2006 general elections, for instance). Counting starts shortly after closure, and Senate votes will be counted first.

3pm: First projections for the Senate are expected. These are going to be updated quite often - presumably every hour. The more votes are counted, the more reliable the projections. Have a look at our pre-election briefing to get a clearer idea of why the balance of power in the Italian Senate is key to these elections.

From here on, everything really depends on how quickly/smoothly the counting goes. Each polling station is free to start counting the votes for the lower chamber after all the Senate ballot papers have been counted.  

Around 7-8pm: Counting for the Senate should be over everywhere in the country. Counting for the lower chamber usually takes longer, given that only people aged over 25 are allowed to vote for the Senate - while everyone aged over 18 can vote for the lower chamber.

Around 11pm: It should be possible to get a good idea of the outcome for the lower chamber, although the final results will probably only be announced tomorrow morning.

The website of the Italian Interior Ministry (see here) will update the results real time, as they arrive from polling stations across the country. But to those who don't speak Italian and want the most important info from a variety of sources we recommend following us @OpenEurope or @LondonerVince

Sign of the times? Anti-euro comedian could come second in the Italian elections

This story most certainly caused officials in Brussels and Berlin - at least those who read the Italian press, or alternatively our daily press summary which was the first to break the news in the international sphere - to choke on their morning cappuccino.

Italian daily Il Corriere della Sera reports that, according to some internal opinion polls carried out by centre-left parties, the Five-Star Movement led by anti-euro comedian Beppe Grillo could become the second-largest party following the 24-25 February Italian elections.

It's true that the international media has over-stated Grillo's anti-euro stance - Europe is not one of the Five Star Movement's key pillars. But Grillo is definitely toying with the idea of Italy ditching the euro, and has said Italy should hold a referendum on its membership of the single currency. He has written stuff like this on his blog, for example:

In order to remain in the euro, we are starving the country…If we had the lira, we could solve our debt problem through a devaluation of our currency.

So think about it again: an anti-euro politician may finish second in the Italian elections - Italy arguably being the most pro-EU country of the lot.

And there's an element of panic going on.

In an interview with Le Figaro, Italy’s former Foreign Minister Franco Frattini (who is also a former EU Commissioner) says,

I don't rule out [Grillo’s Five-Star Movement] finishing second…This would be a tragedy comparable to [far-right leader] Geert Wilders' irruption into Dutch politics. One would then need to take into account the failure of the European idea in Italy.

These polls also raise serious questions over whether whether Mario Monti’s centrist bloc will win enough seats to be the kingmaker in the Italian Senate.

As we said: uncertainty still reigns in Italian politics. 

Monti's candidacy set to make Italy's election season a rollercoaster ride

Last month, the Economist used the Oscar-winning exhortation, "Run, Mario, run" to urge Mario Monti to "come out fighting" in the Italian general elections. Detto, fatto. Monti has put his boxing gloves on and entered the ring. On Friday, he unveiled the logo for his new list (probably not the most exciting one, as you can see from the picture).

However, in what is a high stakes game for Italy's future, Monti's candidacy may ultimately turn out to be more divisive than initially thought - particularly since Italian voters do not seem particularly receptive to his reformist message. 

Democratic Party leader Pier Luigi Bersani had initially claimed he was willing to broadly continue with the reforms initiated by Monti's government, and be "open and generous" towards other centrist, pro-reform forces. However, Monti has now become the leader of those centrist forces - and a rival in the race for Italian Prime Minister. As a result, the Democratic Party is now focusing its efforts in stressing the differences, rather than the similarities, with the 'Monti agenda' - and is strengthening its ties with the smaller left-wing SEL party, which wants a "radical change" in the economic policies implemented by Monti's technocratic government

It is hard to see such a coalition making significant progress in opening up Italy's labour market - something which should top the agenda of the next Italian government, if the economy is to do more than simply run to stand still.

As we have mentioned before, Italy's complicated electoral law is going to play a key role in determining the final outcome of the elections. The rules for the lower chamber of the Italian parliament basically establish that the winner takes it all - and guarantee a solid majority of seats for the party/coalition which gets the most votes. Monti and his centrist bloc are currently polling at 14-15% - well behind the centre-left coalition (on 38-39%) and even the centre-right coalition between Silvio Berlusconi's PdL party and Lega Nord (on 26-28%). Therefore, Monti's clout in the Camera dei Deputati is likely to be marginal. 

However, there are different rules for the Italian Senate - the upper chamber. Italy's electoral law establishes that seats in the Senate are assigned on a region-by-region basis. More specifically, the party/coalition which gets the most votes in a specific region automatically wins 55% of the seats up for grabs in that region. This means that, even with almost 40% of votes nationwide, the centre-left coalition led by Bersani could have a majority in the lower house but fail to secure a majority in the Italian Senate.

And this is where Monti could still potentially have some decisive influence - he knows he might end up being the kingmaker in the Italian Senate (which has equal powers to the lower house). Monti has effectively ruled out working with a government with which he does not agree "on at least 98% of policies", but this could yet prove to be a pre-negotiation tactic designed to entice the Democratic Party to the centre ground.

To sum up, the arithmetic of the polls and Italy's complex electoral rules mean that the outcome of Monti's jump into the fray remains far from certain. His candidacy has injected some much-needed economic reality into Italian political debate - which has in turn increasingly made him a focal point of opposition from both the left and right. Yet, he might still wield influence in the formation of the next government.

Open Europe in 2012: a short summary of our achievements and a review of our eurozone predictions

2012 has been an important and very successful year for Open Europe, with Prospect Magazine judging us “International Affairs” think-tank of the year in recognition of our research and analysis’ increasing influence in the UK, Europe and beyond. This year, many of Open Europe’s research publications and ideas have had a direct influence on policy and decision making regarding the UK’s relationship with the EU.

We also hosted prominent figures from the world of politics, economics and business in our 2012 events programme, discussing a range of topics from the UK’s future role in Europe, Anglo-German relations to the finer points of the eurozone crisis. Perhaps the icing on the cake, in October this year, was the launch of a new independent partner organisation in Germany, Open Europe Berlin gGmbh.

To read the full review of our year, click here. Below we would like to focus on some of the predictions we made about the eurozone over the last 12 months (always a dangerous undertaking). Here is how we fared in predicting some of the key developments:

The bailouts for the Spanish banking sector and Spanish regions: In April, Open Europe’s Head of Economic Research Raoul Ruparel argued that Spanish “banks may be forced to tap the eurozone bailout fund” and highlighted that the build-up of debt by Spain’s regions would mean that they too could require bailouts. In June, Spain announced that it would request €100bn from the eurozone’s bailout funds to recapitalise its banks, while in July, several Spanish regions requested bailouts from the state which sent sovereign borrowing costs to record highs.

Second Greek bailout falling short...: In March, Open Europe predicted that, coming in at just 2% of GDP, the debt write-down of Greek debt under the country’s second bailout would be “far too small to allow Greece any chance of recovery”, with further assistance required in the future. In July, it became apparent that the second bailout had failed and in October, Greece received a two-year extension to its bailout programme, duly confirmed in late November. 

...but with Greece staying in the euro for now: While others put the risk of Greece imminently leaving the euro at 80%, Open Europe’s Mats Persson argued in January 2012 that “I doubt eurozone leaders will have the nerve to force Greece out this year.” 

Credit rating of France and eurozone bailout funds downgraded: In January, we predicted that “France could well be downgraded at least one notch…this would [also] hit the creditworthiness of the euro bailout funds”. On January 16, S&P downgraded France’s triple A rating, with Moody’s following suit on November 19, and on November 30 it also downgraded the eurozone’s two bailout funds.

LTRO would run out quickly: In December 2011, in a briefing looking at the potential impact of the ECB’s programme bank liquidly provision (LTRO), Open Europe’s Raoul Ruparel argued that while it may be welcome in the short-term, “hopes, and plans, that this funding will lead to a boost in purchases of sovereign debt look misguided.” By the summer of 2012, both Spain and Italy were seeing their funding costs rise quickly, and eventually the ECB would have to take additional action. 

Monti would struggle to fundamentally reform Italy’s labour market: In March, Open Europe’s Vincenzo Scarpetta warned of the risk that Mario Monti’s lack of a popular mandate could undermine his efforts to reform Italy’s labour market. With Monti set to step down in the coming months, the OECD has recently highlighted that Italy has undertaken limited labour market reforms, with its labour costs now amongst the highest in the eurozone. 

So not a bad record for 2012, click here to check out our predictions for 2013.

What to expect from the EU in 2013

As 2012 draws to a close Open Europe has put out its take on what to expect from 2013. Reviewing our (admittedly milder) effort at this last year, shows that we didn’t do too badly, especially for what turned out to be a very volatile and difficult year for Europe (with plenty of government interventions, which are notoriously hard to predict).

See here for the full report where we lay out our view on three key topics to watch in 2013 – discussions of a ‘Brixit’, the formulation of the new eurozone banking union and, of course, the continuation or otherwise of the eurozone crisis.

Section 1: The eurozone crisis – survival but stagnation

2013 looks likely to be a calmer, but still painful year for the eurozone, with several political flashpoints (notably German, Italian and Austrian elections) that could quickly trigger a fresh flare-up in the crisis – particularly as many of the campaigns could become de factor judgements on the eurozone crisis and the bailouts. The eurozone is unlikely to fully turn the corner, with low growth and high unemployment continuing to plague many countries. Activism from the ECB is likely to help ease concerns, with its new bond buying programme the OMT potentially activated to aid Spain at some point. This will be needed as markets will still be on edge with Italy, Spain and France face funding costs of €332bn, €195bn and €243bn respectively.

Section 2: Banking union – slow or even slower?
A decision on the second step of the banking union – a joint fiscal backstop – is unlikely to be taken amid continued disagreements and domestic pressures. Even plans to have the ESM recapitalise banks already look to have been pushed back to 2014. During the year it may become increasingly apparent that, as is, the banking union does not represent a solution to the crisis.

Section 3: Britain in the EU – a mid-life crisis or full divorce?

We don’t see any fundamental changes to the relationship, but positioning and political manoeuvring will set the stage for the 2014 (European Parliament) and 2015 (General) elections – that in turn could decide the exact nature of the EU-UK relationship in the future. Two important issues to watch will be the opt out (and back into) EU crime and policing laws as well as the negotiations on the EU budget. The general tone of the debate within the government and Conservative party will be an important test ahead of the elections.

Obviously then, this is far from an exhaustive list but simply represents our thoughts on some key points of interest to watch in 2013. Feel free to share your thoughts for 2013 in the comments below!

Silvio mentions euro exit (again), but everyone is waiting for Mario: An update on Italy

Time for a quick update on Italy, with Silvio Berlusconi and Mario Monti in the spotlight again. Over the past few days, Berlusconi's air time has increased exponentially. The gist of his interviews remains broadly the same (see our previous posts here and here). Yesterday, on Italian public broadcaster Rai Uno, he said,

"Either Germany understands that the ECB must act as a real central bank, and therefore print money, or unfortunately we will be forced to leave the euro and return to our currency."

Believe it or not, his anti-German rhetoric is paying off. Several opinion polls indicate that support for Berlusconi's party is on the rise - although it remains well behind the clear front-runner, the centre-left Democratic Party. This explains why Il Cavaliere is now urging not to "rush" to the elections - suggesting that the vote should be postponed by 1-2 weeks, to 24 February or even 3 March. Perhaps he believes that two extra weeks of electoral campaigning could make a big difference.

Therefore, it is no surprise that Berlusconi's MPs and Senators are now using all possible parliamentary tactics to delay the final approval of the budget law for 2013-15 - which amounts to pushing Monti's resignation back. For the moment, Monti has postponed his end-of-year press conference, initially due on Friday - probably a sign that the budget law will not be adopted by then.

In the meantime, uncertainty remains over what Monti will do after his resignation. According to Italian daily La Stampa, he has decided to stay out of the race, while at the same time making a strong endorsement for a group of small centre parties supportive of his reform agenda as early as this weekend (see our overview for further details about where Italy's main political parties stand ahead of the elections). 

From outside the electoral race, the article suggests, Monti would have the possibility to act as a mediator and facilitate an alliance between those centre parties and the Democratic Party. Sounds plausible, and it might turn out to be a good idea for at least two reasons:

• Opinion polls show that the Democratic Party and the smaller centre parties - that is, the political forces which have pledged to continue with Monti's reforms - would together have the numbers to build a stable government. However, the possibility of them forming a coalition cannot be taken for granted at the moment. Monti's clout could give a decisive push in this direction - which would in principle be good news for Italy and the rest of the eurozone.
• Monti's candidacy would not be risk-free. In particular, it may 'personalise' the electoral campaign too much and turn the upcoming elections into a referendum on Monti himself, rather than his reforms - which are what ultimately matters for Italy's future.

We will continue monitoring the situation closely, so keep following us on Twitter @OpenEurope for real time updates.

Silvio: Who cares about increasing borrowing costs?

We noted on our blog yesterday (and in a piece in today's City AM) that Silvio Berlusconi was likely to opt for populist, anti-austerity (and, potentially, anti-German) rhetoric to regain some ground ahead of the Italian elections.

It took Il Cavaliere 24 hours to prove us right. He told Canale 5 this morning,

The fact that the elections have been brought forward following Monti's resignation is irrelevant, because we are talking about [holding them] just over a month earlier. Therefore, there's absolutely no real reason for the markets to be upset. 

With regard to borrowing costs, let's stop talking about this imbroglio, please. No-one had ever heard about the spread before. We have only heard about it during the past year. Who cares about how much interest we pay to people who invest in our [debt] obligations compared to what is paid to investors who invest in German public debt?

When the euro was introduced, we used to pay a 4.3% [interest rate on our debt], and Germany used to pay a 3.3%. Germany then decided to do one thing in its own interest. It ordered all its banks to sell all the Italian Treasury obligations they had in their coffers...The other American and international funds thought, 'Well, if Germany is selling [Italian debt] there must be something wrong with it.' So they started selling too. 

What matters to us is that the interest rates [on our debt]...have gone up by 2% - which, in a year, means less than €5bn to be added to the €80bn [Italy pays] to service our debt.

Therefore, all the stuff that was invented about the spread is a real imbroglio. The truth is that the spread was used to try and bring down a majority voted by Italians.

Enough German-bashing for one day? Nope,

I was one of the 2-3 most influential leaders in the European Council...[but] I continuously opposed German proposals and demands. I said 'no' when Mrs Merkel was demanding that Greece suffered cuts which, in my opinion, would have brought Greece - as it then happened - almost to civil war. I said 'no' to the Tobin Tax...I said 'no' to the fiscal pact, and I even used the veto...to flag up that Italy could not commit to reducing its [public] debt by €50bn a year.

As we noted before, it will be interesting to see how receptive Italian voters will be to this kind of rethoric - and if the promise of an end to German-imposed austerity will make them forget about Berlusconi's trials and all the rest. 
 

Berlusconi's Senators fire warning shot across Monti's bow

We told you that the four months to the next Italian general elections could be a very long time. And the political situation in Italy could be set for more ups and downs due to the events of the last 24 hours.

This is what happened:

• Last night, Silvio Berlusconi put out a communiqué saying that he is "besieged" by people asking him to run in next year's elections, and will make his final decision "within the next few days". 

• This morning, Italian Economic Development Minister Corrado Passera (in the picture) was critical of Berlusconi's declarations, arguing that "anything that can make the rest of the world even only imagine that we are going backwards is not good for Italy". A clear invitation to Il Cavaliere to enjoy a peaceful retirement.

• Retaliation has been immediate. Mario Monti was facing a confidence vote in the Italian Senate this morning on a new set of (badly needed) measures to boost the competitiveness of the Italian economy, drafted by Passera himself. A majority of senators from Berlusconi's party did not take part in the vote, while a smaller group abstained. 

• Crucially, the leader of Berlusconi's senators, Maurizio Gasparri, said ahead of the vote, "Our attitude [today] signals...the shift of our group to a position of abstention towards the government." This seems to suggest that Berlusconi's party has withdrawn its support for Monti's government.

Monti, who rushed to Palazzo Madama to cast his vote, given that he is a 'senator for life', survived this time. But if all of Berlusconi's senators show next time and abstain (which, by the way, cannot be taken for granted, given the internal divisions created by Il Cavaliere's latest hints to a comeback), Monti would be in danger of losing his majority - since absent Senators' votes do not count and bring the required majority down, as happened a couple of hours ago.

The big question is: was today's an isolated incident or a definitive change of position? Gasparri's words seem to suggest the latter could be true. Should this be the case, Berlusconi could be about to trigger another round of political uncertainty Italy really doesn't need.
 

Berlusconi's farewell?

Over the past few months, Silvio Berlusconi repeatedly suggested (but never 'officially' confirmed) that he intended to run for Prime Minister in next year's general elections. However, he now seems to have backed down over his planned return. In a TV interview his morning, he made a couple of unequivocal remarks:

I want the unity of [Italian] moderates, and in order to achieve it, if necessary, I'm even ready not to run [in next year's elections]. 

What's strange about it? I intend to do what's good and useful to my country and...if I need to step aside, I'll do it. 

There's no trick or room for second thoughts. 

In other words, Il Cavaliere's well-known (albeit slightly anachronistic) obsessive fear of 'leaving the country in the Communists' hands' seems to have prevailed in the end. But this was by far the most interesting part of the interview,

I wouldn't rule out [Italian Prime Minister] Mario Monti as the leader of this moderate front. Monti has always moved within this political area.

Berlusconi is clearly not averse to U-turns - but, as we pointed out on this blog before, he is also a seasoned politician. Now, the latest opinion polls have all signalled that his party is in a free fall, as it would win only 15% of votes if elections were to take place now. However, the same opinion polls also show that centre-left Democratic Party only commands around 25% of support.

With comedian Beppe Grillo's Five-Star Movement consistently polling at around 20% and consistently ruling out post-election alliances with the 'old political establishment', Italy's two mainstream parties may ultimately have to go for some sort of German-style 'grand coalition' (possibly including a couple of smaller, pro-reform centre parties) if they want to achieve a sufficient majority - which, incidentally, now appears to be the only chance for Berlusconi's party to stay in government after the elections.

If confirmed, Berlusconi's decision not to stand in next year's election would therefore clear what would, otherwise, arguably be the main obstacle to such a solution. And Monti? Well, he is clearly not keen to stand in the elections - not least because that would involve picking up a political party to back his candidacy.

However, under Italian law, it is the Italian President who is responsible for tasking someone with forming the new government - and the person does not necessarily have to be the leader of one of the political parties that contested the elections. Therefore, if Italian party leaders converge on a second mandate for Monti, he may have to follow up on his pledge to "be there" for Italy, if the country's political forces ask him to stay on.
        

Lega Nord steps anti-Euro rhetoric up by another notch

Italian Lega Nord party's opposition to the euro is clearly not limited to two nostalgic MPs organising a rally where the Italian lira is used as the official currency. Call it political opportunity, but since Lega Nord is no longer in government, it has stepped up its anti-euro rhetoric by several notches.

Roberto Maroni (see picture) - the party's recently appointed Secretary General and a former Italian Interior Minister - made some very interesting remarks in an interview with La Repubblica (available here).

He said,

“At the end of August, we will submit to the Court of Cassation [Italy’s supreme court] a citizens’ initiative for a legislative proposal to hold a consultative [i.e. not legally binding] referendum on the same day as the 2013 elections, in which Italian citizens can have their say on the euro. I want to collect millions of signatures, and I can guarantee that our initiative is not an isolated one in Europe.” 

“Listening to the people is no blasphemy. In any case, it would be a consultative referendum. My objective would be for such a referendum to be held in all [eurozone] member states before the 2014 European elections. This is why I am going to meet the euro-critics in other EU member states.” 

So what would happen if the ‘no’ camp were to win (which, according to recent opinion polls, looks unlikely at the moment)? This is Maroni’s thought-provoking idea,

“New scenarios would open up. What I would like to see is a new eurozone with Northern Italy in the euro. But in order to get there, a referendum is needed first. The most important thing is that democracy should decide, not bureaucracy.” 

However, Maroni’s position sounds rather confused. On the one hand, keeping only Northern Italy in a ‘new eurozone’ would entail splitting the country first (which, by the way, remains the primary aim of some Lega Nord members). On the other hand, Maroni also seems to suggest that Italy would not face mayhem outside the single currency. He argues,

“Great Britain taught us a great lesson with the Olympics. Someone must explain to me why that country is so strong outside the euro, whereas Italy outside the single currency would be a catastrophe…Anyway, our vision is not anti-European, but neo-European. And we are the only ones who have it.” 

On a more general note about the future of European integration, Maroni said,

“The analysis [Lega Nord] made more than ten years ago turned out to be correct. Europe has failed. We are not going towards the United States of Europe envisaged by Carlo Cattaneo and Altiero Spinelli, but rather towards a single state which has all the characteristics of Hobbes’ Leviathan.” 

“I agree with what the Bavarian Minister-President [Horst Seehofer, who also featured on our blog recently] has said. People don’t want a European super-state…One thing is certain: the political union supported by the élites has turned out to be a fantasy of poets [this expression should sound familiar to the readers of our daily press summary, see here], and a denial of democracy. This [happens] because the bureaucracies rule.”

Pretty strong words to say on the Ferragosto bank holiday, with many Italians (including Mario Monti) enjoying their summer break. It is too early to say how far Lega Nord can get with this initiative. According to the Italian constitution, 50,000 signatures are required to submit a citizens' initiative - a number Lega Nord should be able to collect easily. However, the draft bill then needs to get parliamentary approval to become law - which looks much more difficult to achieve.

Nonetheless, the initiative in itself is politically quite significant. Furthermore, it will be very interesting to see how many Italians will sign up to it - we can see the number going well beyond the legally required threshold of 50,000.

The Lira is back (for a weekend)

Lega Nord has decided to treat its supporters to a bit of 'throw back' party, remembering the days when Italy used the lira as its currency. The party has organised a rally in Avio (north-eastern Italy, where else?) for this weekend, at which the lira will be used as the only official currency. Interestingly, the two Lega Nord MPs who promoted the rally - Maurizio Fugatti and Sergio Divina - have decided to officially invite Italian Prime Minister Mario Monti.

The two said in a joint statement,

“This will be the opportunity to show to the technocrats and the enlightened bureaucrats who built this Europe, including Prime Minister Mario Monti, the damages caused by the euro, which they decided to introduce sitting around a table without the people’s approval – the consequences of which the citizens are now paying every day in terms of cost of living. The need for a popular referendum is now evident, so that those who work and pay taxes can express their opinion on Europe and the euro.” 

It is the second time in only a couple of days that Italian politicians use the words 'euro' and 'referendum' in the same sentence. From the opposite side of the political spectrum, Italian comedian Beppe Grillo - whose Five Star Movement has been consistently polling at over 20% during the past few months - wrote on his blog recently,

“A referendum on the euro and the restructuring of [Italy’s public] debt is ever more necessary. See you in parliament...It will be a pleasure.” 

Neither of these parties is likely to be in government after next year's elections, and recent opinion polls suggest that a referendum on the euro would see a quite clear victory for the 'stay inside' camp. However, as we noted several times before (see here, here and here), such a change in rhetoric and the fact that cross-party support for the single currency can no longer be taken for granted in Italy is in itself very significant.

Another blunder for Monti

As competent as he is, Italian Prime Minister Mario Monti has really stepped in it this week. Only one day after Der Spiegel published his pretty unfortunate statement that eurozone governments should not be "completely bound by the decisions of their parliaments", the WSJ yesterday published excerpts from an interview with Monti from last month. In the interview, Monti suggested that, if Silvio Berlusconi and his government were still in power,

Italy's spreads would now be at 1,200 or something. 

Ouch!

He might be right, but still not smart politics. Remember, although Monti leads a technocrat-only government (and, indeed, is an unelected technocrat himself), he has to rely on parliamentary support to pass the structural reforms Italy needs so badly.

Berlusconi's party still holds the highest number of seats in both chambers of the Italian parliament. Therefore, if Berlusconi's MPs and senators were to withdraw their support, Monti and his cabinet would have no alternative but to quit. So Monti should probably choose his words more carefully.

Berlusconi's party instantly retaliated, and the result was the government failing to obtain a majority during one of the votes in the lower house yesterday over a new €26bn savings package. It was mainly a symbolic move (the specific vote was on a procedural act) and the package was eventually approved, but it was a reminder of the important role still played by Berlusconi's lot.

The leader of Berlusconi's senators, Maurizio Gasparri (in the picture), said,

Monti should display a more balanced and respectful behaviour, as the [Italian] parliament is holding one vote of confidence after the other. Sooner or later, someone may grow tired.

So for the second time in less than 24 hours, Monti was forced to apologise (although his office prefers using the word 'clarify'). He called Berlusconi and told him he was "sorry" because that specific sentence had been "extrapolated" from a longer conversation and taken out of context.

Apologies accepted, it seems. But the episode is another reminder of how for Italy the main risk remains political.

Why Sicily shows Italy still has a lot to do...

As if Mario Monti didn't already have more than enough to work on this summer, another urgent item has taken the top spot on his agenda. The regional administration in Sicily (whose building, the beautiful Palazzo Normanni in Palermo, is pictured) is at serious risk of default. Its debt stood at a record €5.3 billion at the end of last year. The governor, Raffaele Lombardo, had already suggested that he would step down at the end of July. However, Monti felt the need to send him a letter yesterday, urging him to confirm his intention to quit. Given the shambolic state of affairs in Sicily we will overlook the fact that this essentially involves a technocrat calling on an elected politician to quit - far from ideal, but it's clear that Lombardo has to move on.

According to the Italian press, Monti and Lombardo are planning to meet next Tuesday, with the Italian government ready to send an administrator to take control of the region from the moment the Sicilian governor resigns. This statement made by Sicily's regional councillor for infrastructures, Andrea Vecchio, gives an idea of the gravity of the situation. He said yesterday,

Is Sicily on the verge of bankruptcy? I think so. I'm afraid we will soon no longer be able to pay the employees' salaries.

Politically, the situation is obviously serious, but not particularly controversial. Regional autonomy in Italy is not the same thing as, for instance, in Spain. The right for the central government to step in and grab the helm if regional administrations go off course is enshrined in the Italian constitution. However, the unbelievable list of waste and mismanagement examples which led Sicily so close to default (some of which featured in our 50 examples of EU waste, 2010 edition) offers a clear explanation of why Italy still has a lot to do to find its way out of the woods of the eurozone crisis.

Courtesy of Italian journalist Sergio Rizzo - co-author with Gian Antonio Stella of the bestseller 'La casta' ('The caste' in Italian) - here are some interesting and concerning examples:

- At the end of 2011, the Presidency of the Sicilian region employed a total of 1,385 people - i.e. more than the UK's Cabinet Office, which had 1,337 employees;

- According to the Italian Court of Auditors, the entire regional administration in Sicily employs 17,995 people. Last year, while Berlusconi's government was piling up austerity packages, 4,857 of these employees, previously on a temporary contract, were put on a permanent one;

- In 2011, these employees cost the region over €760 million just for their salaries and allowances - 45.7% more than in 2001. If social security charges are taken into account, the cost rises to almost €1.1 billion;

- Sicily's regional administration employs the same number of directors as 15 other Italian regions put together. This means that in the island's administration there is on average a director for every nine employees (the average in the Presidency office is one for every five or six).

Italian daily La Stampa offers a couple more colourful (but equally worrying) examples:

- The allowances of the 90 members of Sicily's regional assembly include €5,000 for 'funerary expenses';

- Back in 1984, Sicily decided to buy two killer whales (yes, you read it right) from Iceland, at a cost to the taxpayer of over 200 million of Italian lire - i.e. over €100,000. They were supposed to be admired by tourists visiting a water park in Sciacca, in the province of Agrigento - on the south-western coast of the island. A real shame that the park was never finished and the killer whales had to spend the rest of their lives in a swimming pool, at a cost of 6 million of Italian lire - i.e. over €3,000 - a month.

It looks like Super Mario will definitely have to live up to his moniker on this one... 

Berlusconi's comeback: What could it mean for Italy's future in the eurozone?

In today's City AM, we argue:

The jubilant chanting and cork-popping in Rome last November now looks premature. In a sensational U-turn, Silvio Berlusconi has decided to run for Prime Minister in next year’s elections. 

His comeback may have huge implications for Italy’s future in the single currency. Over the past few weeks, the 75-year-old former Italian Prime Minister has outlined his personal way forward for Italy in the Eurozone crisis – quite revolutionary compared to Italy’s traditional view of its euro membership. 

He has made clear that the solution to the Eurozone crisis is for the European Central Bank (ECB) to become the ultimate backstop for struggling Eurozone countries. If this scenario fails to materialise, there are only two alternatives left. The first, in Berlusconi’s own words, would be Italy and other peripheral euro members saying “ciao ciao” to the single currency. The other would be Germany leaving instead – clearing the way for the ECB to act as the Eurozone’s lender of last resort. Pouring more fuel on the fire, Berlusconi described the prospect of a future outside the single currency as “no blasphemy” and “not the end of the world” for Italy. 

Those remarks were by no means the swan song of a disgraced leader. If there is one thing Berlusconi knows better than many Italian and European politicians, it is how to tell people exactly what they want to hear. And you can bet that he is well aware that riding the anti-euro (and anti-austerity) tiger can pay off in votes these days – as the apparently unstoppable rise in the polls of comedian Beppe Grillo’s Five Star Movement shows. 

Italy leaving the euro remains a distant prospect. Yet, if Berlusconi’s new line of thinking becomes official party policy, the result would be one of the largest political parties in Italy openly saying that the country’s support for the single currency should no longer be unconditional. Add Lega Nord and the Five Star Movement, and the number of anti-euro voices across the political spectrum starts to look worrying. 

The German press has reacted to Berlusconi’s comeback in a particularly telling fashion – with headlines ranging from centre-left Süddeutsche Zeitung’s “The candidacy of a nightmare” to centre-right Die Welt’s “The Godfather, Part IV”. 

Nonetheless, Berlusconi’s return could paradoxically turn out to be good news for Germany. Italy’s centre-left Democratic Party – currently the most popular in opinion polls – could be encouraged to form an anti-Berlusconi coalition with other moderate centre parties. This would break its tradition of seeking allies among the far-left, whose ideological background is incompatible with many of the reforms initiated by Mario Monti’s technocratic cabinet. Despite consistently rejecting the idea so far, Monti might then be willing to stay on as the head of this reformist coalition, provided that it receives broad support in next year’s elections. Unlike with Berlusconi, many Italians would probably forgive him for the U-turn.

 

Which one was the more important Italian victory last night...?

Among (understandably) triumphalist reports that Germany had to surrender to Italy twice yesterday - in the Euro 2012 semi-final and at the EU summit - the websites of several Italian dailies are this morning also offering a quite funny video showing what journalists - apparently not only from Italy - were really focusing on while European Commission President José Manuel Barroso and European Council President Herman Van Rompuy were holding their joint press conference in Brussels.

Please do let us know if you spot one single journalist NOT watching football...

Euro-bonding

After the G8 summit, French President François Hollande claimed that he would "not be alone" in proposing Eurobonds at tomorrow's informal dinner of EU leaders in Brussels. But, who, exactly, are his bed fellows?

Italian Prime Minister Mario Monti is undoubtedly a supporter of Eurobonds, along with former Economy Minister Giulio Tremonti. However, Monti has also repeatedly stressed that Eurobonds should not be "an excuse to relax budget discipline". From the US, Monti said that, for the moment, he would seek a mere agreement on the "evolution towards Eurobonds." (whatever that means).

Monti is also likely to prioritise his own proposal: exempting public spending on certain "strategic" sectors from the EU's deficit and debt rules - a proposal which no doubt will rub Angela Merkel completely the wrong way. Monti is unlikely add fuel to the fire by also insisting on Eurobonds.

What about Spain, a perceived beneficiary of debt pooling? Well, Prime Minister Mariano Rajoy yesterday told reporters that, at this stage, the priorities for his government are "fiscal discipline, structural reforms and financial stability" - not Eurobonds. He added,

The most important thing is to take decisions that can be enacted in 24 hours. We can't enter debates [about the creation of Eurobonds] that can last for years. 

Quite right Rajoy. The Spanish PM will not want to take on Merkel over the proposal either - his main concern is the future of Spain's banking sector. As speculation mounts that Spain may be forced to tap the eurozone's bailout funds to deal with its banks, Don Mariano wants Germany on side.

Even the European Commission itself is saying that the time is not yet ripe for Eurobonds, instead pushing for the less controversial 'project bonds'. In an interview with the Wall Street Journal over the weekend, Commission President José Manuel Barroso said,

We think that it's only when there is an increased level of convergence and discipline that Eurobonds can appear as something credible. [Eurobonds should not be seen as] an invitation for irresponsible fiscal behavior or having some kind of moral hazard.

So who else? The Austrians, whose Finance Minister Maria Fekter said in an interview,

Growth financed by debt? Those are the recipes from the day before yesterday. The arguments that are put forward by France's new president François Hollande are nonsense and got us into this whole mess in the first place.

Or the prudent Finns? Hardly.

Well, there's one: David Cameron.

At least this time around, Cameron will not have a French President calling him an "obstinate kid" and asking him to stop interfering in eurozone politics.