Italy’s borrowing rates spiked yesterday to their highest level since the euro was established in 1999 ahead of a budget vote in the Italian parliament that could ratchet up the pressure on Italian Premier Silvio Berlusconi to resign.
The markets have turned their attention this week from the political crisis in Greece — where the two main parties were locked in talks yesterday to forge a national unity government — to Rome.
Berlusconi’s government is under intense pressure to enact quick reforms to shore up Italy’s defenses against Europe’s raging debt crisis. However, a weak coalition and doubts over Berlusconi’s ability to push through austerity reforms have heightened the unease in financial markets that Italy could need financial aid.
What happens in Italy is a particular worry as it is the eurozone’s third-largest economy. With debts of about 1.9 trillion euros (US$2.6 trillion), Italy’s debts are considered by many in the markets as being too big for Europe to bail out.
Higher rates would make it more difficult for Italy to rollover its debts and will mean they consume more national income. Italy has more than 300 billion euros to raise next year alone.
By late-morning trading, the yield on Italy’s 10-year bonds was up 0.07 percentage point at 6.60 percent, down from an earlier high of 6.74 percent. A rate of more than 7 percent is considered unsustainable and proved to be the trigger point that forced Greece, Ireland and Portugal into accepting the need for financial bailouts.
The parliamentary vote was on a knife-edge, with Berlusconi’s coalition showing signs of fracture. Italian news agency ANSA reported that Italian Finance Minister Giulio Tremonti hurriedly departed from a meeting of eurozone finance ministers in Brussels to return to Rome.
The Chamber of Deputies vote, on a routine measure, is not a confidence vote — whose loss would require Berlusconi to resign. However, a loss would send a message that Berlusconi is in trouble.
In less tense times, the vote would have meant routine approval of last year’s state accounts, but -instead it has become a crucial test of Berlusconi’s survival as head of his three-and-a-half-year-old -center-right government. Last month, the vote of the same measure failed by one vote. Chamber whips were meeting a few hours before the vote to map out a strategy for the vote, which was set to take place yesterday afternoon.
Opposition forces were considering boycotting the vote so the numbers would more clearly show just how many deputies still support the government. If Berlusconi’s forces number less than 316 deputies — or one more than half the number of the 630--member chamber, it would be plain that the media mogul no longer can count on a majority in the lower house of Parliament.
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