x Abu Dhabi, UAETuesday 23 January 2018

Berlusconi to resign over Italian debt crisis

Coalition turns on Italian premier as parliament passes economic reforms demanded by the European Union to save Italy from being engulfed in debt crisis.

Silvio Berlusconi last night promised to resign as prime minister after the Italian parliament passes economic reforms demanded by the European Union to save Italy from becoming further engulfed in Europe's debt crisis.

His offer followed a parliamentary revolt over a bill on public finances that showed Mr Berlusconi had little choice.

Amid growing anxiety on the money markets, Italian legislators approved the bill - but abstentions, which included some centre-right coalition partners, exceeded pro-government votes, showing the beleaguered 75-year-old premier to have lost majority support.

Mr Berlusconi was said to be "incredulous" and furious with the "betrayal" of former supporters who defected.

Greece for once took second billing in the financial calamities confronting Europe.

An interim government of unity was thought close to formation, though assurances were being sought by both the EU and Lucas Papademos, the former vice president of the European Central Bank (ECB) tipped to replace George Papandreou as prime minister.

Greece's woes are dwarfed, in purely numerical terms, by those of Italy. With up to €1.9 trillion (Dh9.64 trillion) of debts, or 120 per cent of annual economic output, Italy's borrowings amount to more than the combined total for other troubled economies, Greece, Portugal and the Irish Republic.

International Monetary Fund officials are due to visit Rome in the coming days to inspect the government. But last night's vote threatened another period of uncertainty as Mr Berlusconi pondered the prospects of another fight for survival.

Earlier, the yield on Italian 10-year bonds had risen to 6.74 per cent, record interest rates on Italian borrowing since before the euro was launched 12 years ago. The rate eased fractionally but remained dangerously close to the 7 per cent threshold at which Italy, like other ailing EU states before it, may need to seek a bailout.

On the streets of Rome and the provinces, and in the view of many political and financial analysts, the end of the Berlusconi era is not only near but offers the country its best hope of finding solutions to its present predicament.

The prime minister, who has survived dozens of previous confidence motions, began the day clinging to his "no surrender" stance, determined not to go without a fight.

His own allies confirmed that he embarked on a frantic round of consultations in an attempt to drum up support.

But although opponents stopped short of voting down the budget, which could have brought dire consequences for the day-to-day running of the country, his position was seen by many observers as untenable.

"I think by now it is inevitable that his government will come to an end," James Walston, professor of international relations at the American University of Rome told the BBC. "It may not be today, or even tomorrow, but it will be very soon."

In a Twitter message, Edward Lucas, international editor of The Economist, likened the country to a "rich man who works part-time, has credit-card debts and has lost his wallet. Illiquid not insolvent".

The immediate question after last night's vote was whether the clear loss of parliamentary support - especially if followed by a confidence motion - would persuade the prime minister of the extent to which he is seen as central to the Italian malaise.

Markets rose on Monday amid rumours that Mr Berlusconi had agreed to step down, only to slump again when he used Facebook to deny the stories.

Calls for Mr Berlusconi's resignation extended yesterday to his main coalition partner, the Northern League, as belief grows that only with his departure can the mammoth task of rebuilding confidence begin. This was interpreted in some media reports from Rome as potentially "a mortal blow".

But opponents are unlikely to be convinced that one suggested replacement, Angelino Alfano, secretary of Mr Berlusconi's PDL party and a former justice minister, would be accepted as representing Italy's need for change.

In Brussels, euroz one finance ministers, in yet another session of crisis talks, agreed to to boost the rescue fund for threatened member countries by the end of this month. But the Italian debt burden is almost twice the biggest contingency fund so far envisaged.

A decision on Greece's new unity government was expected as early as last night. Mr Papademos was reported to be insisting on continued membership of the EU. Having led his country into the 27-nation bloc, he has made clear that he will not be the man who takes it out again.

France is also feeling the weight of economic gloom and the president, Nicolas Sarkozy, was quick yesterday to defend a new round of austerity measures as an "absolute necessity" if the country was to reach its target of a zero deficit by 2015.

Mr Sarkozy rejected criticism from the left and also some on the right that he was putting growth at risk.

He described as populist a pledge by his socialist presidential rival, François Hollande, to show an example by cutting the head of state's salary by 30 per cent. And he attacked attempts to depict the international markets or credit ratings agencies as "witches from the Middle Ages", saying: "It is the accumulation of debt and deficits which makes a country lose its independence."