Italy’s change of guard
After a tumultuous week, when Italy’s borrowing costs rose to the kind of levels that saw Ireland and Greece forced to seek an international bailout, reaction on Monday was positive with stocks rising and the yield on 10-year bonds well under the seven per cent danger line at 6.4 per cent.
Meanwhile, as the treasury raised the maximum amount sought in a sale of five-year bonds, market sentiment remained cautious.
Investors demanded an interest rate of 6.29 per cent on Monday, the highest level since 1997, compared with 5.32 per cent at a similar auction a month ago, which still remained below a dangerous 7 per cent.
“This was Mario Monti’s big first test, and I think he’s probably quite happy with how things have turned out this morning,” Al Jazeera’s Barbara Serra reported in Rome.
Monti has received the backing of the main opposition groups and the conditional acceptance of Berlusconi’s centre-right PDL after objections from several factions in the party were overcome.
“In the end, a sense of responsibility prevailed,” Mario Baccini, a PDL legislator, said, adding the PDL would support a Monti government as long as it stuck to reforms agreed by the outgoing government with the European Union.
Berlusconi, who was jeered as he was driven to the presidential palace to resign, defended his record, saying he had resigned “so Italy could avoid being attacked by financial speculation”.
Pietro Paganini, a political commentator, told Al Jazeera that Berlusconi had “certainly not left behind an attractive legacy”.
“Hopefully a new government will first give Italy credibility, which is what the markets demand.”
“Even though Berlusconi has obviously made a massive imprint on Italy, no one here is really sad to see him go,” our correspondent said.
With the next elections not due until 2013, Monti’s government could have about 18 months to pass painful economic reforms, but will need to secure the backing of a majority in parliament and could fall before then.
With public debt at $2.6 trillion – more than 120 per cent of gross domestic product – Italy is at the heart of the eurozone debt crisis and would be too big for the bloc to bail out.
“Italy’s economy is actually okay in the sense that they tend to break even at the end of the year, in terms of taxation and spending. It’s the interest on their massive debt that is crippling their economy,” said Serra.
Monti, a tough negotiator with a record of taking on powerful corporate interests as a European competition commissioner, must demonstrate that his government will be able to control spending and pass the kind of reforms to pensions, public service and labour markets that the prior government was unable to implement.
On the left, possible reforms such as an increase in the pension age or easier hiring and firing rules could prompt strong opposition from unions once the elation of Berlusconi’s departure has passed.
But the threat could be at least as great from the right with Berlusconi’s old Northern League coalition partners declaring they will oppose a Monti-led government and many in the PDL also harbouring deep reservations.
In a potentially ominous sign of the dangers that may face a Monti government, Italian news agencies also reported that Berlusconi had told party colleagues that they would control the future of a new administration.
“We can pull the plug whenever we want,” he was quoted as telling party allies.