Berlusconi set to resign

It has been released that Silvio Berlusconi will resign as Italy's prime minister following the approval of the new budget law. This news comes the day after he lost the majority in parliament and in the middle of financial turmoil surrounding Italy.

By Guy Dinmore in Rome
Last updated: November 8, 2011 7:09 pm
Financial Times

Silvio Berlusconi is to resign as Italy’s prime minister following the approval of a new budget law, the country’s president was quoted as saying on Tuesday evening.

A senior official told the Financial Times that Mr Berlusconi has proposed to resign after parliament passes the new financial stability law containing the reform measures agreed with the European Union.

News of the billionaire prime minister’s plans to stand aside came after a day that saw him lose his majority in parliament and Italian bond yields set fresh euro-era highs, intensifying questions as to whether Italy will be able to service its debts.

Following the news of Mr Berlusconi’s offer to depart the euro gained 0.4 per cent against the dollar to $1.3836. Gold fell after earlier reaching $1,800 per troy ounce for the first time since September.

Following the vote, Pierluigi Bersani, leader of the main opposition Democratic party, urged Mr Berlusconi to resign, warning that Italy risked losing access to the financial markets.

“I ask you, Mr Prime Minister, with all my strength, to finally take account of the situation . . . and resign,” Mr Bersani said.

Tuesday’s vote came after mounting concern in bond markets pushed Italy’s borrowing costs to fresh euro-era highs.

The ruling coalition mustered 308 votes to pass the motion to ratify the 2010 national accounts, but was eight votes short of an absolute majority in the lower house. Opposition MPs did not cast their votes.

Mr Berlusconi spent an hour in talks with the president, Giorgio Napolitano, following the vote.

Italy has become the focus of fears for the future of the eurozone. Even as a summit of European leaders in Brussels a fortnight ago agreed a deal with holders of Greek debt designed to stem the sovereign debt crisis, Italy’s political standoff stoked concerns that the world’s eighth biggest economy might find its debt burden unsustainable.

Ahead of the vote, the 75-year-old prime minister applied pressure to would-be rebels in his party, declaring he wanted to “look in the face” of those intending to “betray” him.

Pressure mounted on Mr Berlusconi ahead of the vote when Umberto Bossi, leader of the Northern League – junior partner in the ruling coalition – told reporters his party was asking Mr Berlusconi to step aside.

Mr Bossi previously insisted that his party wanted early elections if the government were to fall. It was not immediately clear if the Northern League’s latest stance was a ploy to persuade wavering MPs to vote with the coalition, or its final position.

He threatened to force Italy into snap elections – and possibly a heavy defeat for the ruling coalition – should he lose.

The political deadlock gripping Italy has sent yields on the country’s bonds to their highest level since the euro was introduced more than a decade ago, and close to the point where analysts say debt costs risk spiralling out of control.

Yields on Italian 10-year bonds hit a high of 6.74 per cent early on Tuesday before easing slightly, after further intervention by the European Central Bank. They climbed back up to 6.71 per cent immediately after the vote.

The spread with German Bunds widened to a euro-era high of 496 basis points before narrowing to 486bp. After the vote it widened to 489bp. The Treasury is due to try to sell €5bn of 12-month notes on Thursday.

Two possible scenarios are a broader centre-right coalition led by a Berlusconi appointee – possibly Gianni Letta, cabinet undersecretary – or an emergency technical government headed by Mario Monti, former European Commissioner.

Senior officials say that as matters stand, it would appear that neither would have broad enough parliamentary support to form a viable government. This would plunge Italy into the uncertainty of snap elections in January, and further delays in implementing the deficit-cutting and growth-promoting measures demanded by the European Union and ECB.

Additional reporting by David Oakley and Tom Burgis in London

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