Brussels, 30/09/2013 (Agence Europe) - Markets reacted with concern on Monday 30 September at the umpteenth political crisis in Italy which saw five ministers belonging to Silvio Berlusconi's Il Popolo della Liberta resign from the coalition government.
The interest level on Italy's 10-year debt returned to its June level, close to 4.7%, before falling back to 4.5% in the middle of the day. For investors, the risk linked to the political instability in Italy is now seen as being clearly greater than the economic difficulties being experienced by Spain.
The European Commission, choosing to remain cautious, said nothing on this affair, with the Italian national parliament voting on a motion of confidence in the government on Wednesday. A Commission spokesperson said: “we are keeping a close eye on political developments [in Italy] and in the markets but we are making no comment” at this time. In his speech on the state of the Union to the European Parliament in September, Commission President José Manuel Barroso pointed to political uncertainty as being what was most likely to wipe out the budgetary and economic efforts made in member states.
In Rome in mid-September, Euro Commissioner Olli Rehn stated clearly that, in the case of Italy, where the economy was still showing signs of weakness, political uncertainty was holding back investment and recovery (see EUROPE 19023). He was critical of the Italian government's repeal of the IMU housing tax under pressure from Berlusconi's party. It was a decision that could mean that Italian public debt will once again be excessive in 2013. Indeed, it was the desire to increase VAT to offset the loss of revenue from the repeal of the IMU that was, officially, behind the resignation from the government of the Il Popolo della Liberta ministers.
The resignations are also a way for former Italian prime minister and businessman Berlusconi to hold a dagger to the throat of the fragile government of Enrico Letta. Berlusconi could very well see himself banished from political life in a few days' time when the Italian senate will vote on whether he should resign his seat after being found guilty of tax fraud.
Accusing the European People's Party (EPP) of not being able and not wanting to prevent the resignations of the five ministers, the leader of the S&D Group in the European Parliament, Hannes Swoboda of Austria said: “Il Popolo della Liberta is failing to show any sense of responsibility”. “Mr Berlusconi should know that he cannot fool the people into thinking that this is anything but a distraction from his personal judicial troubles”, he stated in a press release. Swoboda warned against dissolution of parliament and holding fresh elections, which would bring “months of turmoil”. He called on the other political parties in the Italian national parliament “to act decently, in the country's interest”. (MB/transl.fl)