Silvio Berlusconi

Berlusconi lacks backing for threat to topple Monti government

Outburst risks rattling financial markets, but even his own party appears cool to the idea

PUBLISHED : Tuesday, 30 October, 2012, 12:00am
UPDATED : Tuesday, 30 October, 2012, 4:05am

Former premier Silvio Berlusconi's threat to bring down Italy's government underscores deep divisions in his centre-right party ahead of next year's elections and risks rattling markets that see Prime Minister Mario Monti as Italy's saviour.

Berlusconi made the unexpected threat on Saturday, still fuming from his conviction 24 hours earlier on charges of tax fraud and a jail sentence of four years, which he will not have to serve until all appeals are exhausted.

In a hastily called news conference he trained his sights on Monti's economic policies.

"The initiative of this government is a continuation of a spiral of recession for our economy. We will decide in the next few days whether it is better to immediately withdraw our confidence in this government or keep it, given the elections that are scheduled," he said.

The Monti government of non-elected technocrats is supported by the centre-left, the centre-right and the centre. It would lose its majority and have to resign if most of Berlusconi's PDL party withdrew support.

"The damage would be enormous," Stefano Folli, editor of Italy's leading financial daily Il Sole 24 Ore. "Damage in terms of political neurosis, international anxiety, threats to the stability law (the annual budget), and a general discrediting."

Monti has pushed through painful tax rises, spending cuts and a pension overhaul to cut public debt which is running at 126 per cent of gross domestic product, according to the International Monetary Fund.

Unemployment has risen to 10.7 per cent, its highest since monthly records began in 2004, and unions are locked in disputes with companies over plant closures and layoffs

Fabrizio Cicchitto, leader of Berlusconi's PDL party in the lower house of parliament, was cool to the idea of a government crisis, saying instead that the country had to avoid "an explosion" of the spread between German and Italian bonds.

On Friday, Italy's 10-year bonds were yielding 336 basis points more than debt of similar maturity issued by Germany, widely seen as Europe's safest. When Monti took over from Berlusconi in November, the spread was about 550, sending borrowing costs soaring to 7.6 per cent.

"Italian political risk is rearing its ugly head again. Berlusconi … is … exploiting the chronic political instability," said Nicholas Spiro, head of consultants Spiro Sovereign Strategy in London.

The fact Cicchitto and other PDL leaders did not rush to second Berlusconi's suggestion of a government collapse spoke volumes about the rifts in the party.