Italy plunges back into political turmoil

Berlusconi listens during a debate at the Senate on December 13, 2010 in Rome, Italy.

Story highlights

  • Italy's prime minister Mario Monti is resigning
  • After Mr Monti took seat last year, he pulled Italy back from a financial meltdown
  • On Saturday, Silvio Berlusconi announced that he will run as prime minister again
  • Mr Berlusconi was convicted for tax fraud in October

Normal service is resuming. After a year of relative stability and regained market confidence, Italy is plunging back into political turmoil with the familiar sight of Silvio Berlusconi gearing up for yet another electoral campaign -- his sixth in 19 years -- against a centre-left still seeking to shed its proto-communist image.

Mario Monti's surprise decision to resign as technocrat prime minister once the 2013 budget law is approved by parliament, probably later this month, means Italy is likely to hold general elections in mid- to late February, six weeks ahead of schedule.

The 69-year-old economist informed Giorgio Napolitano, head of state, of his decision on Saturday night, arguing that his unelected government was unable to see out its mandate after losing the support of Mr Berlusconi's centre-right People of Liberty (PDL), the largest party in parliament.

Mr Monti will remain as caretaker prime minister until the next government is sworn in, which could be as late as March.

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What could yet turn the forthcoming elections into more than a replay of past left-right battles is the pressure mounting on Mr Monti to stand for prime minister himself and defend the legacy of his fiscal consolidation and economic reforms.

"Keep going! Don't abandon us," a supporter shouted to Mr Monti as he left church on Sunday morning in his home city of Milan.

Mr Monti's intentions are unknown. Ferruccio de Bortoli, editor of Corriere della Sera, Italy's leading daily, wrote on Sunday after speaking to Mr Monti: "It is clear that he feels free to decide. He is thinking of it. Many are pushing him to make a move."

On Saturday afternoon, attending a practice session of his AC Milan football team, the billionaire Mr Berlusconi, 76, ended long speculation over his own plans, confirming he would run again as prime minister to seek his fourth term since 1994.

He also revealed one element motivating his comeback by again attacking the judiciary for what he calls its political bias in convicting him for tax fraud in October. Hanging over him still are accusations, which he denies, of paying an underage Moroccan-born belly dancer for sex and abusing his position as premier to secure her release from detention.

On Friday, Angelino Alfano, PDL secretary, opened the party election campaign by declaring to parliament that "the experience of this government is over".

"Monti read Alfano's statement in parliament as a sudden declaration of war and did not want to be left in the hot seat -- powerless, a scapegoat and belittled... He thinks Italy is better off with two rather than three months of uncertainty," commented a senior government official closely following events.

"Monti wants to be free to run -- if he decides to," the official added, describing the prime minister as "determined" and "incensed" with Mr Berlusconi's conduct, which he saw damaging Italy's regained credibility on the markets.

Erik Nielsen, chief economist of UniCredit, a leading Italian bank, said he expected a sell-off in Italian assets when markets opened on Monday, followed by pressure leading into a debt auction on Thursday, and volatility over the next two months.

Events last week had already sparked a mild sell-off of Italian bonds, with the yield on its 10-year debt rising 10 basis points to 4.53 per cent. That is still 250 points below the heights reached 13 months ago, when Mr Monti took over from Mr Berlusconi -- and, with the help of Mario Draghi at the European Central Bank, pulled Italy back from a meltdown threatening the eurozone.

Even running a populist anti-austerity and anti-German campaign, Mr Berlusconi faces a seemingly impossible task to close the 20-point gap in opinion polls separating his party from Mr Monti's. He also fears he will be blamed for adverse market reaction.

However, Pier Luigi Bersani, leader of the Democrats, has some way to go to persuade sceptical "moderate" voters that he has shed his Communist party past, despite his record of being a pragmatist and relative reformist in Italy's last short-lived centre-left government, brought down by Mr Berlusconi in 2008.

Mr Nielsen said he was less worried, noting: "So far I have heard nothing from the Bersani camp that would make me worry about Italian reforms or Italy's newly reclaimed place at the table among other leading European or G7 members."

Some legislation in pipeline will fall by the wayside by early dissolution of parliament -- including reform of the electoral law, a tax code reform, and various justice measures.

Mr Monti has also assured the international community that he does not foresee an undoing of his achievements in putting Italy's budget in order, despite the growing resentment at his tax increases and spending cuts.

In Cannes on Saturday however, he did express worries over the rise of populism and "illusory promises", a veiled reference to Mr Berlusconi and the anti-establishment Five Star Movement, which is ahead of the PDL in some polls.

While pro-Berlusconi newspapers rejoiced on Sunday at the news of Mr Monti's impending resignation, mainstream dailies voiced deep concern.

"It should be time for Italy to become a normal country, predictable and even boring. A country not to be ashamed of that can sit in Europe and succeed in making itself heard," wrote Mario Calabresi, editor of Turin's La Stampa. "For a year we got close to it."