Today in the center of attention not Berlusconi anymore, but the problems that Italy will continue to have, no matter who is leading the country.
The yield on Italian bonds has risen to a recent record, signaling the distrust that investors have in Italy’s ability to repay its debts.
Italian 10-year bond yields is still above the 7 percent level that is unsustainable. As a result, investors concern that they may not get their money back and German Chancellor Angela Merkel is speaking about possible calling to arms.
Merkel said the deep structural reforms were needed quickly, warning the rest of the world would not wait. “That will mean more Europe, not less Europe,” she told a conference in Berlin.
She also called for changes in euro zone treaties after French President Nicolas Sarkozy suggested a two-speed Europe in which EU countries accelerate and deepen integration while an expanding group outside the currency bloc stayed more loosely connected – a signal that some members may have to quit the euro if the entire structure is not to crumble.
“It is time for a breakthrough to a new Europe,” said Merkel. “A community that says, regardless of what happens in the rest of the world, that it can never again change its ground rules that community simply can’t survive.”
Italy replaced Greece at the center of the euro zone debt crisis and is on the cusp of requiring a bailout that Europe cannot afford to give.
An Italian default would threaten the entire euro project. Euro zone treaty changes could possibly take a year at least. Rome can’t wait such a long time.
After having lost his majority in a parliamentary vote, Berlusconi announced he would resign after implementing economic reforms demanded by the European Union, and said Italy must then hold an election in which he would not take part.
In an interview with La Stampa newspaper, Berlusconi confirmed his intention not to run again in the nation’s next elections. “I won’t run for office,” he said, adding that the decision made him feel “liberated” and that he might go back to running his soccer club.
He rejected transitional or unity government in any possible form and added polls were not likely until February, leaving a three-month policy vacuum in which markets could create havoc.
Even with the exit of scandal-and-empty-promises man, it will not be easy for Italy to convince markets it can pay its huge debt, liberalize the labor market, attack tax evasion and boost productivity.
“There is no guarantee (Berlusconi’s) successor will be able to do a better job. Just keep your eyes on the Italian yield for now,” Christian Jimenez, president of Diamant Bleu Gestion, said.
Berlusconi, a 75-year-old media mogul who dominated Italy’s political landscape for two decades, compared his loss of support — particularly among his own backers — to the experiences of Benito Mussolini during World War II.
In the interview Italian prime said he had been reading a book of letters written by Mussolini to a lover. “At a certain point he says: ‘But don’t you understand that I don’t count for anything anymore, I can only make suggestions,” Berlusconi said. “I have felt in the same situation.” [Via Reuters and Washington Post]