Crisis trails in Silvio Berlusconi’s wake after inconclusive election result

Markets plummet and borrowing costs rise as Italian election fails to provide a clear winner

Ben Chu,Michael Day
Tuesday 26 February 2013 19:41 GMT
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Confidence has drained from the financial markets as investors reacted in alarm at the result of the Italian general election which leaves the political future of the eurozone’s most indebted state hanging in the balance.

Italy, which has a sovereign debt stock of €2 trillion, saw its borrowing costs shoot up as investors grappled with the surprisingly strong performance of the party of former prime minister, Silvio Berlusconi and the Five Star Movement of comedian Beppe Grillo. Both politicians had criticised the austerity policies imposed by Italy’s former technocrat prime minister Mario Monti after he was installed in place of Mr Berlusconi in 2011.

The interest rate on Italian 10-year bonds rose from 4.48 per cent to 4.92 per cent before easing slightly. The Milan stock market closed down 4.9 per cent. Financial contagion spread the distress to fellow eurozone struggler Spain, where borrowing costs jumped from 5.25 per cent to 5.4 percent. The Madrid stock market shed 3.4 per cent on the day as nervous investors rushed to exit riskier shares.

Analysts warned that the poll result throws the economic reform programme of Mr Monti, which had helped Italy recover the confidence of financial markets, into doubt.

“The roadmap to reform in Italy has hit a brick wall,” said Eoin Ryan of IHS Global Insight. “Whatever government configuration takes shape, it will have to prioritise and find political agreement on electoral reforms, paving the way to fresh elections.”

Marius Daheim of Bayerische Landesbank said that the market retreat could be expected to continue as long as Italy’s political future remained unresolved. “The longer this political deadlock lasts the more investors will reduce the risk,” he said.

In Italy there was trepidation and confusion among the country’s political leaders as the country digested the inconclusive election result. Mr Monti, whose austerity measures and partial reforms calmed the markets during his stop-gap 15 month administration held an emergency meeting with senior ministers and the Bank of Italy, while Silvio Berlusconi said it was a moment “to reflect on what was best for Italy” rather than rush to fresh elections. Mr Berlusconi returned to his Arcore mansion outside Milan to follow the regional election results, in which the powerful Lombardy region appeared to be going to his key ally and Northern League leader Roberto Maroni.

But despite Mr Berlusconi’s hints at compromise, the prospects for any form of stable coalition that would enable the centre-left coalition led by Pier Luigi Bersani to govern appeared remote, after senior figures in his Democratic Party, including its former Senate leader Anna Finocchiaro, dismissed the notion of a pact with Mr Berlusconi.

Mr Grillo, whose Five Star Movement will have 109 MPs and 54 senators in parliament, also promised to block the both the mainstream parties at every turn unless they met his conditions.

Mr Grillo who can not enter parliament himself due to a past conviction for manslaughter following a car crash, said: “ “We’ll start doing what we have always said …public water, public education, public health. If they follow us they follow us. Otherwise the battle will be very hard for them, very hard.” He added that a minority centre-left government would not last more than seven to eight months.

Nonetheless, Stefano Folli, a columnist for the respected Il Sole 24 Ore business daily, said the only two options were a left-led “equilibrium government” that would rely on Grillo votes in the Senate or a right-left interim majority to pass key reforms and before returning to the polls within a few months.

Roberto D’Alimonte, political science professor at Rome’s LUISS University, said: “Grillo will play a decisive role. He has to decide whether to strike a limited agreement with the left or go for fresh elections.”

Last night Mr Bersani set out his key aims, with an eye firmly on the issues of importance for the Five Star Movement, which won the biggest share of the vote of any single party.

Mr Bersani said the centre-left’s “essential programme” would focus on “reform of the institutions and the political system and its costs” and also “morality - public and private, and defence of those most exposed to the economic crisis and a Europe-wide push to create new jobs”.

But he also issued a thinly-veiled warning to Mr Grillo over his strongly Eurosceptic stance. “An Italy that detached itself from Europe would be a disaster. This is mathematics not an opinion,” he said.

Before any election could be held, there is parliamentary business to attend to with strict deadlines. First, parliament is due to convene on 15 March 15 to elect speakers for both chambers. Next the head of state Giorgio Napolitano will have to ask Mr Bersani to form some sort of government, although this many not be formalised for a month.

If he is unable to do so then the head of state can either appoint a caretaker government, as he did after the collapse of the last Berlusconi administration in November 2011, or call new elections. The latter option would be problematic because President Napolitano himself is due to retire at the end of April after a seven-year period in office, and the constitution demands that his replacement be appointed by parliament by mid-May.

What the Press said

“Chaos” and “ungovernability” were the words that kept cropping up in Italian newspapers after the grim reality of a hung parliament had sunk in.

The centre-left daily La Repubblica said Grillo’s anti-establishment Five Star Movement had caused “an earthquake” in the election and reflected on the many big name-politicians denied places in the next parliament as a result. In the political centre, the Milan daily, Corriere della Sera wondered whether “an ungovernable Italy” would “sink Europe”.

Predictably, The Berlusconi family’s Il Giornale saw things differently. “Berlusconi Miracle” screamed its front page – a sycophantic nod to the mogul’s success in denying the centre-left a majority in both houses.

But writing in the liberal, Turin-based daily La Stampa, pundit Massimo Gramellini had a more balanced take on events: “In this election Grillo is the only winner,” he said. “And that’s an understatement. The polls have hosted a mass uprising against the elite…the caste of politicians, journalists, bankers, people with inside connections.”

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