Italy’s political crisis scaled new heights yesterday (3 August) as European institutions voiced confidence in the under-fire markets of the country, whose fragility is threatening the entire euro zone.
Prime Minister Silvio Berlusconi promised yesterday (3 August) to step up economic reforms in the euro zone’s third biggest economy and called for a broad-based effort in the country to counter the markets’ attacks.
In a speech short on detailed policy, he said: “The government and parliament will act, I hope, with a large political and social consensus to fight every threat to our financial stability. Today more than ever, we need to act all together.”
Berlusconi twice delayed the speech, waiting for Milan’s stock exchange to close before appearing before MPs. He told them that Italy “has a solid economic and political system”, but offered limited new ideas in the face of the escalating crisis.
He proposed a new growth pact and the reform of regulation protecting Italian workers, a move that would be highly controversial in light of the country’s current low employment levels.
He also suggested a new social deal including co-operation between employers and trade unions. Commentators were sceptical, however, about whether and how such policies could restore solid economic growth – now lacking for several years – to Italy.
Berlusconi’s regime appears in fact to be weakening by the day. Opposition calls for him to quit were echoed by influential Fiat CEO Sergio Marchione, who is very close to the US administration having successfully rescued US carmaker Chrysler.
Marchione said: “We need a credible leadership. In other countries who makes mistakes, quits.”
EU voices support
In an impromptu statement yesterday, European Commission President José Manuel Barroso reiterated his confidence in the fundamental health of Italy and Spain, despite the heavy pressure that they have come under from financial markets.
Barroso said: “These developments are clearly unwarranted on the basis of economic and budgetary fundamentals in these two member states, and the steps that they are taking to reinforce those fundamentals.”
However, his analysis of the situation did little to quell investors demanding record-high yields for Italian and Spanish bonds, further widening the gap with the German bund benchmark.
Tremonti-Juncker crisis meeting
Before Berlusconi took to the floor in parliament, Italy’s Finance minister – Giulio Tremonti – flew to Luxembourg to meet the Eurogroup chairman, Jean-Claude Juncker.
After a two-hour meeting, they limited themselves to a short statement saying that they had discussed troubles affecting the entire Eurozone, and that they will continue to do so.
Tremonti also spoke on the phone with EU Finance Commissioner Olli Rehn.
A spokeswoman for Rehn said: “Minister Tremonti updated Commissioner Rehn on the measures being taken by Italy to implement structural reforms and fiscal consolidation.”
“Commissioner Rehn reaffirmed that he remains convinced that Minister Tremonti and the Italian authorities are doing what is necessary to put the country back on track for higher sustainable growth and ensuring fiscal consolidation,” she added.
Tremonti’s star falling?
Many commentators have linked Italy’s recent financial market pressures to a series of political and judicial scandals weakening Tremonti’s position.
Two weeks ago, Milan stocks markets fell sharply in the wake of an article in Italian newspaper La Repubblica in which Berlusconi explicitly distanced himself from his finance minister.
Matters subsequently worsened when an aide of Tremonti – Marco Milanese – was indicted for bribery and influence-peddling. The Finance minister is perceived as dangerously close to his former adviser, who offered Tremonti the free use of an expensive apartment in the centre of Rome for many years.
Tremonti has been widely seen as a shield against excessive expenditure and populist promises made by Berlusconi, even in the midst of the financial crisis. Ironically, Tremonti sat next to Berlusconi during yesterday’s heated exchanges in the parliament, as a symbol of political unity.