Berlusconi renaissance would be 'disaster' for Italian economy

Story highlights

  • Democratic Party deputy Enrico Letta's comments come as Berlusconi's popularity surges
  • The media tycoon and owner of soccer club AC Milan was forced to step down in 2011
  • Large number of undecided voters could provide election surprise, says Nicholas Spiro

A leading figure in the party poised to head Italy's next government says a return for the country's previous Prime Minister, controversial politician Silvio Berlusconi, would be a "disaster."

Democratic Party Vice Secretary Enrico Letta's comments come as Berlusconi's popularity surges in the Italian electoral polls after seemingly being out of the race.

In an interview with CNN, Letta said incumbent Prime Minister Mario Monti cannot win the election and it is now a straight race between Berlusconi and Bersani.

A victory for Berlusconi "would create mistrust between Italy, its European partners and the markets," Letta told CNN.

Italy's economy is experiencing a period of relative calm as government bond yields remain well below the critical 7% level and Monti's austerity measures begin to take effect.

Read more: Can a Bersani-Monti coalition work for Italian economy?

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With a contracting economy and GDP falling 0.9% in the fourth quarter of 2012; Italy is still grappling with the economic mess Silvio Berlusconi left in his wake before resigning in late 2011.

The media tycoon and owner of soccer club AC Milan -- who previously served three terms as prime minister -- was forced to step down amid an escalating eurozone debt crisis and personal legal battles.

Letta added: "The only way to avoid any risk to the Italian economy is a victory for the Democratic Party."

Italians will take to the voting stations this weekend to decide which candidate will lead a country, struggling to emerge from a financial crisis that has plagued the 17-nation eurozone for three years.

Bersani is currently leading the polls with Berlusconi trailing by 5 to 7 points.

But Deborah Bergamini, a parliamentarian and member of Berlusconi's PDL party, is expecting a "surprise" result on February 25. She rejected Letta's assertion that a return for the 76-year-old Berlusconi would destabilize Italy's economy.

Speaking to CNN, Bergamini said: "Berlusconi can definitely win. We are gaining ground... financial markets don't care at all about single heads of governments."

A Bersani government is the true threat to Italy's economic recovery, according to Bergamini, as the Democratic Party could adopt hard-left policies that tax the middle class and punish big businesses.

"There are many similarities with Bersani and what is going on in France... we are very worried," she added.

With a population of over 60 million, Italy -- the eurozone's third-largest economy -- has an unemployment rate of 11.2% with public debt to GDP forecast to rise to 128% this year, according to the European Commission.

Read more: Will Monte Paschi banking scandal throw open Italy's election race?

Nicholas Spiro, managing director of Spiro Sovereign Strategy, told CNN that a year ago Italy's economy was "falling off a cliff" and the investment community is showing "complacency" over the prospect of a Berlusconi return.

Spiro says the embattled politician could do very well in the election due to the "huge" number of undecided Italian voters. He added: "The fact that he has put the center-right alliance in contention is reason enough to doubt the prospects for post-election stability."

The election outcome is crucial to the eurozone's austerity agenda and "it's going to be a damning verdict," says Spiro. Adding that if Berlusconi can form a government there will be an "almighty sell-off" in the bond markets.

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