|Financial pressures led Berlusconi to announce he would resign, but jitters persist among investors [Reuters]|
Italy’s president has moved to allay fears over political uncertainty, saying a new government will be formed shortly and that Prime Minister Silvio Berlusconi’s resignation will be accelerated.
Giorgio Napolitano said in a statement on Wednesday there was no uncertainty over Berlusconi’s decision to resign once a new Finanancial Stability law was adopted, “within the space of a few days”.
“Fears are totally unfounded that Italy may experience a long period of inactivity,” Napolitano said, adding that “emergency measures” could be adopted at any time.
Renato Schifani, the Senate president, told reporters he expected approval of the economic measures by the end of this week.
“The moment we’re going through, with international speculation attacking our country, requires swift choices and political cohesion,” Schifani said.
Following the collapse of his governing coalition, Berlusconi said on Tuesday he would step aside for the good of the country, which is grappling with a major debt crisis.
Napolitano’s assurance about a new government came as Italy’s key borrowing rate surged above seven per cent, raising the economic pressure on the beleaguered country.
The yield on Italy’s 10-year bonds surged on Wednesday to a high of 7.40 per cent, up 0.82 of a percentage point from the previous day.
Higher borrowing rates will make it more difficult and expensive for Italy to roll over its debts. It has over $412bn to raise in 2012 alone.
The seven per cent threshold is considered unsustainable for a government over the longer-term and is the point at which Greece, Ireland and Portugal – all eurozone members – ran into economic difficulties eventually leading to international bailout payments linked to austerity cuts.
Al Jazeera speaks to ordinary Italians about the looming austerity measures
But analysts consider Italy, the eurozone’s third-largest economy with debts of $2.6 trillion, too big to be bailed out.
“It takes time to permeate to the rest of the debt mountain,” Jan Randolph, head of sovereign risk analysis at IHS Global Insight, said.
“Seven per cent is not sustainable over several years. It has to be brought down eventually. Otherwise, we are in danger.”
Borrowing rates settled down to 7.26 per cent after Napolitano’s remarks.
“Yields at 7%: markets are telling Berlusconi to leave NOW. They don’t buy his scheme of pretending to leave in 2 weeks after budget is passed,” Nouriel Roubini, an economist who has lived in Italy, said on Twitter.
Randolph noted that Italy was in better fiscal shape than either Greece or Portugal when they sought bailouts as its deficit is below the eurozone average, but growth is weak.
Milan’s stock index also fell in reaction to the economic and political turmoil, sliding 4.3 per cent lower at 15,002, while shares in Berlusconi’s Mediaset empire were trading down 9.8 per cent.
Despite the spiralling borrowing costs, the euro zone has no plans for a financial rescue of Italy, euro zone officials said on Wednesday.
“Financial assistance is not on the cards,” one euro zone official said, adding that the 17-member currency bloc was not even considering extending a precautionary credit line to Rome.
It would be up to Italy to reassure investors it would pay back what it borrowed, the euro zone official said.
“They will just have to prove that the yields are not justified, because they aren’t.”
‘Supreme political operator’
With Italy awaiting a new government to be formed after Berlusconi finally quits, analysts said the prime minister may take his time to step down.
“Berlusconi is the supreme political operator. And no one will believe he has resigned until he has done so. Simple as that,” Randolph, of IHS Global Insight, said.
“He survived confidence votes before and he has made comebacks. No one really believes he is gone until he is gone.”
While Berlusconi confirmed he would not run for office again, he is by no means stepping out of the political limelight.
In an interview with La Stampa, he said he would remain active as the founder of his political party and would help out in political campaigns “which always turned out well for me”.
Berlusconi has said he will quit after austerity measures are put in place, but as Al Jazeera’s Tim Friend reported from Rome, “the government is unclear about how it will proceed with introducing these reforms”.
“These are measures largely imposed on Italy by Europe because they want them to sort out this huge debt mountain, and that’s where the problem lies,” he said.
“These have to get under way quickly because while there’s this uncertainty, the markets, the stock market and the bond market don’t like it, and we’ve seen some pretty alarming figures emerging today.
“They wanted stability, they wanted credibility, what they’ve got at the moment is volatility and panic, frankly, on occasion.”
The next government, whether run by politicians or technocrats, is likely to face the same pressures as Berlusconi to enact quick reforms to shore up Italy’s defences against the debt crisis.