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Crisis mounts around Italy's Berlusconi As the market turmoil increases, threatening a wider euro zone crisis, scandal-plagued Berlusconi has come under fire from all political sides over his handling of the crisis
Prime Minister Silvio Berlusconi was meeting his ministers on Wednesday to discuss measures to try to calm market turmoil that has ravaged Italian bonds and bank shares and threatened to tip the euro zone's third largest economy into full-scale crisis. Berlusconi, under growing pressure to step down and hand power to an emergency government of national unity, met senior aides and ministers on Wednesday morning ahead of an expected meeting of the cabinet. Yields on 10-year Italian BTP bonds fell slightly from the highs reached on Tuesday but were still at more than 6.1 per cent as bonds remained under pressure, even with support from the European Central Bank's bond buying operation. The risk premium paid on Italian 10-year bonds compared with their safer German equivalent was at 439 basis points, a slightly narrower spread than the 455 points on Tuesday. Greece's surprise decision to call a referendum on austerity measures demanded by the European Union has thrown markets into turmoil and worsened fears about the stability of other heavily indebted economies like Italy. As the market turmoil has increased, threatening a wider euro zone crisis, the scandal-plagued Berlusconi has come under fire from all sides over his handling of the crisis. President Giorgio Napolitano issued a highly unusual statement late on Tuesday, calling on Berlusconi to pass reforms without delay and indicating that he was looking at how much support there was for reform outside the ranks of the centre-right government. Napolitano does not have the power to dismiss Berlusconi as long as he has a parliamentary majority but if the open divisions in the coalition were to deepen and provoke a crisis, he would have the power to name a new administration. "That was a warning," said Anna Chimenti, a professor of constitutional law at the University of Foggia. "Until there is a crisis, Napolitano is like a referee who blows the whistle when rules are not respected. He's blowing the whistle now." A separate declaration from Italy's main business and banking federations called on Berlusconi to act immediately or "draw the consequences", underlining the wide distrust of the government from broad sections of society. CRISIS MEETINGS Amid an air of crisis in Rome, Italy's top financial officials were due to meet to discuss the impact on the banking sector, while the government prepares possible new reforms ahead of a meeting of G20 economic powers on Thursday. Economy Minister Giulio Tremonti, Bank of Italy Governor Ignazio Visco, Treasury head Vittorio Grilli and the heads of insurance regulator ISVAP and markets watchdog Consob were due to meet at 3 p.m. (1400 GMT), the Treasury said in a statement. If bond yields remain at their current level, Italy faces having to pay billions of euros more in interest payments over coming years but there is a growing risk it could be shut out of bond markets entirely if yields rise to 7 per cent. Too big to bail out if its borrowing costs get out of control, Italy has a mix of sluggish growth, a divided and ineffective government and a public debt equivalent to 120 per cent of gross domestic product that poses a growing threat to the survival of the euro. Berlusconi has promised European Union partners reforms such as easier rules on redundancies, including for civil servants, and an increase in the pension age but the measures would not be due to take effect for months. Officials are trying to pack new measures, including cuts to some tax breaks and more labour market liberalisation, into a budget bill currently in the Senate to enable the government to present an approved package of legislation as soon as possible. Other potential measures, including a wealth tax and a possible amnesty on tax evasion have caused deep disagreement between ministers including Berlusconi and Tremonti. A series of austerity packages passed during the summer aimed to bring Italy's budget into balance by 2013 but the government has been widely criticised for the slow and erratic implementation of the measures. The scandals involving Berlusconi, who faces trial on a variety of charges ranging from tax fraud to having sex with an underaged prostitute, have also raised questions about his focus on the complicated reform process. http://english.ahram.org.eg/News/25781.aspx
