Italian political crisis takes a turn as PDL Senators may bolt party unless Berlusconi backs off ... stay tuned !

http://globaleconomicanalysis.blogspot.com/2013/09/berlusconi-faces-party-revolt-collapse.html

Monday, September 30, 2013 12:48 PM

Berlusconi Faces Party Revolt; Collapse of Italian Government Hangs in Balance; Rush For Votes is On

Late last week, former prime minister Silvio Berlusconi ordered five ministers to resign from Italy's government. They did, and as a result, current prime minister Enrico Letta's coalition government is on the verge of collapse.

 Mr Berlusconi, leader of the centre-right Forza Italia party, said the resignations were a response to the government’s decision on Friday to increase in sales tax from next month.

Mr Letta, prime minister, rejected Mr Berlusconi’s explanation as an “enormous lie”, and called the decision “mad and irresponsible and aimed exclusively at covering up his personal affairs” – a reference to Mr Berlusconi’s criminal conviction for tax fraud which is likely to lead to a ban on holding public office.

Beppe Grillo, the comic-activist leader of the movement, who has ruled out supporting a government led by the Democrats, on Saturday night called for snap elections. But his autocratic style of leadership and a purge of several parliamentarians who refused to toe Mr Grillo’s line have fuelled speculation that the Democrats might just be able to put the numbers together to form an alternative majority, including centrists led by former prime minister Mario Monti. Equally it is not clear whether all Mr Berlusconi’s MPs will remain loyal to their billionaire leader of the past two decades who turns 77 this weekend and is facing a year of house arrest or performing community service.

Mr Napolitano, who holds the constitutional power to dissolve parliament, has repeatedly expressed his opposition to holding snap elections. But if Mr Letta’s government were to fall and no alternative majority was in sight, then Italy could be faced with the unprecedented and extremely worrying prospect of staging elections before the end of the year at the risk of derailing the 2014 budget.

Rush For Votes is On

Today the rush for votes is on. Berlusconi, who has a long history of winning close votes may have overplayed his hand this time and Berlusconi faces party revolt over coalition collapse.

 "Who is not with me is out," declared a headline in Monday’s Il Giornale, a Milan daily owned by the Berlusconi family, as the former prime minister arrived in Rome to ensure party unity ahead of a crucial senate vote expected late on Wednesday.

The numbers game has begun in earnest as Enrico Letta, centre-left prime minister, prepares to address both houses of parliament in a last-ditch effort to keep his government in office after Mr Berlusconi pulled his five ministers out of their five-month-old coalition at the weekend.

Mr Letta’s Democrats control the lower house but alone they are 54 votes short of an absolute majority in the senate following last February’s deadlocked elections. With the likely support of leftist allies, four recently appointed life senators and 20 centrists led by former prime minister Mario Monti, that deficit is reduced to a dozen or so.

Mr Letta is openly banking on wooing disaffected members of Mr Berlusconi’s Forza Italia party after all five ministers perfunctorily ordered to resign by Mr Berlusconi publicly expressed their misgivings and then slammed Il Giornale for running a front-page editorial that came close to accusing them of betrayal.

Although few doubt Mr Berlusconi’s powers of persuasion and his tenacity, the prospect of their 77-year-old leader being banned from holding public office and serving one year under house arrest, or performing community service, has reinforced the sense that the centre-right is entering a post-Berlusconi era.

The nannycrats in Brussels do not want snap elections because it opens up all kinds of budget battles.

The vote is going to be close. And the closer it is, the more pressure president Napolitano will apply on a few holdouts to sway the election.




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http://www.zerohedge.com/news/2013-09-30/meanwhile-italy

Meanwhile In Italy...

Submitted by Tyler Durden on 09/30/2013 08:55 -0400

• Bond
 
• Deutsche Bank
 
• Greece
 
• Italy
 
• Reuters
 
• Tax Fraud

inShare

UPDATE: Reuters reports that 20 senators from Berlusconi's party are preparing to create new party if Berlusconi does not soften stance against PM Letta - EUR and Italian Bonds are ramping.

*AS MANY AS 20 BERLUSCONI SENATORS MAY LEAVE PDL: REUTERS

Via Bloomberg,

Berlusconi faces demands from his lawmakers to back down on confrontation with Letta, Reuters reports citing party official.

We can't help but feel this is well-placed Reuters propaganda as we saw in 2011 - later to be denied but for now it is having the desired effect...

Before this we noted:

With Italian bond spreads 35bps wider in the last few days and the FTSEMIB stock index tumbling, it is clear the uncertainty in Italian politics is raising anxiety levels. The rest of Europe is catching that cold too (especially Greece and Spain). As Deutsche Bank notes below in the brief but complete summary of where we go next, the various scenarios that are possible, and market reactions, the actions represent the acceleration of an end to a very fragile environment.

Via Deutsche Bank,

On Saturday (28 Sept.), Berlusconi called for the resignation of the ministers of his party (PDL). All five ministers resigned from the cabinet, but three of them implicitly criticised the decision of de facto bringing down the government. The move came in after PM Letta (PD) announced late on Friday that he would ask for a confidence vote early this week. Recall that on 25 Sept., the MPs of the PDL had threatened to resign if the Senate Committee on 4 Oct. decides for Berlusconi’s expulsion from the Senate due to his convictions for tax fraud. A decision that will have to be confirmed by the whole Senate around 20 Oct.

The actions represent the acceleration of an end to a very fragile government. A government that has not only failed to push through any significant reform, but has even promoted some counterproductive policies (e.g., cutting property taxes rather than labour taxes).

What happens next? Towards a new government crisis

Uncertainty remains unusually high even by Italian standards. We expect that the Italian government will formally fall after a confidence vote probably on 2 Oct., leaving us with the following tentative scenarios:

Base case: a new coalition is patched together with PD still at the helm with support from some PDL and Five Star Movement (5SM) members. This government would have only limited scope: approve the 2014 budget and a new electoral law ahead of new elections in spring 2014. Recall that the centre-left has a majority in the lower house. So the Senate is the key battleground. 161 votes are needed to obtain a Senate majority. Assuming the PD (108 minus the Senate President), Mario Monti's Scelta Civica (20) and Senators for autonomous regions (10) support a new government, 24 additional votes are needed. Extra support would have to come from dissenters within the 5SM (50) and PDL (91) as well as from ex-5SM senators (4), Sel (7) and senators for life (5). The ensuing government would be once again very fragile.

Alternative scenario: Failure to form a new government coalition, which would trigger early elections in late 2013 or early 2014. On the one hand, President Napolitano repeatedly stated he wants to avoid early elections with the current electoral law.1 Note that current polls suggest that with the current law new elections are likely to result in another stalemate. On the other hand, on Sunday Napolitano did not hint, as he did in the past, to the possibility he could resign to block immediate early elections (a new president would have to be elected).

Likely market reaction

In any event, with the OMT in place, we would not expect a market stress worse than the one seen after the February 2013 elections, unless (i) the PD fails to unite behind a strong candidate and (ii) opinion polls show that a populist or anti-euro party clearly leads in the opinion polls.