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November 10, 2011

Italy Looking Like Greece: Berlusconi Resignation Solves Nothing (Guest Post)

When a tyrant is killed or resigns after, for instance, decades into power, we struggle to consider if the news as true. Sorry Silvio, to make this parallel with your story but when I read the news about your resignation on Nov. 8, I smiled and whispered : "Silvio, I don't believe you".

An you know why ? Because Berlusconi is a businessman, a fighter and a self made man.

Silvio Berlusconi is not a politician, he has learnt how to deal with them. He has still the businessmen attitude like Mitt Romney, the Massachusetts Governor and the Republican candidate for the primaries has.

Just a few seconds after the vote at the Italian Parliament, the current Italian Prime Minister handwrote a note with his short term strategy: new coalition, elections, resignation, go to the President of the Republic or another solution. Even in a moment of hardship, Berlusconi has the ability to project himself ahead. And I'm sure he told to himself "you won't get rid of me so easily !".

Silvio Berlusconi yesterday 
at the Italian parliament
Even if this is not the end of the story, Berlusconi agreed to resign after passing the financial stability law. This law could be voted within a week or two. If you're used to working with politicians, you depict the situation as a clever political move to gain time, preferably until mid December.

Short term timetable : An European Commission delegation is due to land today in Rome and monitor the Italy's compliance with debt-reduction targets and the other measure to avoid any double-dip recession. This Friday, the Italian Finance Minister Giulio Tremont has to deliver to EU Commissioner Rehn all the details and answers related to the emergency austerity plan voted in September.

Big insurers exposure to Italy : facts are spinning out of control and the Italian bonds at 10 years are at an unprecedented level: both psychological and arithmetic ! We've learnt that big insurance companies (Allianz, Aviva, Axa, generali and Zurich) are heavily exposed to Italian debt. According to the Financial Times, these companies hold 200 Bn EUR of Italian sovereign bonds, which is far bigger from their "slim & manageable" exposure to Greece, Ireland and Portugal.

Mid term scenario : everything is possible, from a Berlusconi bis to a switch with one of his best lieutenant such as Angelino Alfano, the current Minister of Justice. A third way would be a new government of national unity with technicians in order to weather the storm. As it turns out, elections are not the preferred solution for a majority of politicians at the present. Furthermore, the financial community has decided not to wait anymore giving a clear message at the stock exchange this morning.

Mario Draghi, the new President of the ECB
From Frankfurt to Rome : the new President of the European Central Bank (ECB), Mario Draghi, has clearly stated that the current ECB strategy of buying Italian bond is a short term strategy. In other words, Draghi has the power to calm and set panic among markets.

Even if Draghi can be seen as pro Italian by ordering to level up the acquisition of Italian bonds, he could also be considered as the eurozone killer without any appropriate move.

At the end of the road, ECB actions cannot replace government actions (reforms) ! Italy is not Greece but has early signs of Greek crisis within it. There's not other way to survive, reform the country, pass the financial stability law and then think about all the political move afterwards.
About The Author - Roberto De Primis is a business intelligence analyst with an M.A. in Political Science. from E.M. Solvay Business School. Writing from Brussels, he is the founder of Eurintelligence, linking economics, and finance with politics.  (EconMatters author archive here.)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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