In a highly anticipated speech to parliament, delayed until after the close of markets in Milan, the prime minister defended his centre-right government’s record but offered no new initiatives to calm investors’ fears of a country that would need an EU bail-out if current borrowing conditions persisted.
Implicitly rejecting calls for his resignation, Mr Berlusconi said the “government would continue to act as a government” for its remaining 20 months before general elections are due in early 2013.
“We have solid economic fundamentals,” Mr Berlusconi declared, listing a solid banking system, low levels of private debt, and a relatively modest and declining budget deficit which the government aims to eliminate by 2014.
The markets were not correctly evaluating Italy’s fundamentals, Mr Berlusconi said, rejecting the advice of those in his own coalition who had urged him to take the initiative rather than lay the blame on outside forces. He was met with jeers from opposition benches as he reminded parliament he was a businessman with three companies listed on the Milan bourse.
Earlier, the Milan stock exchange had fallen for the third straight day while at one point the spread between Italian and German bonds reached a euro-era record of 393 basis points.
“Either I am on Mars or he is on Mars,” responded Pierluigi Bersani, leader of the opposition centre-left Democratic party, accusing Mr Berlusconi of failing to recognize the depth of Italy’s crisis. Pierferdinando Casini, head of the centrist UDC, said the government, beset by corruption scandals, had lost credibility.
Commenting on the speech, a strong critic of Mr Berlusconi within the government, who asked not to be identified, acknowledged it was “boring” but said the prime minister was right to point to the lack of confidence in the eurozone as the root cause of Italy’s current problems on the markets.
“This crisis is not about Italy, Spain, Belgium or France and measures they can take. It is about confidence in the euro,” he commented.
Giulio Tremonti, finance minister, sat impassively next to the prime minister as he spoke, having rushed back from Luxembourg where he consulted Jean-Claude Juncker, chairman of eurogroup of finance ministers in what both called a “long and fruitful discussion”.
“It is extremely difficult to see how Italy itself can stop the rot,” commented Nicholas Spiro, a London-based analyst, before Mr Berlusconi spoke, noting that the yield gap between Italian and Spanish 10-year bonds, which had been 80 basis points in April, had “evaporated”.
“The suddenness and abruptness of the deterioration in Italy’s creditworthiness is contributing to the perception that Italy has supplanted Spain as the epicentre of the crisis in the solvent core of the eurozone. The danger now is that Italy succumbs to a self-fulfilling loss of confidence in its debt markets,” Mr Spiro added.
Senior bankers and industry leaders in Milan blame the government for exacerbating contagion fears by failing to take decisive action in the past days amid political infighting.
They say pressure is growing on Mr Berlusconi to stand down because of the strain on Italy’s sovereign debt position, but they do not expect him to quit or be ousted soon.
“I expect no consideration by Berlusconi to step down for the good of the country,” one senior industry figure told the FT. ”Berlusconi is a dead man walking. But unfortunately he is not yet enough in a corner.”
Bankers said markets were also unhappy about the potential exit of Mr Tremonti from the government over his close ties to a former aide who is under investigation for corruption.
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