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09Aug11
Italy opposition: Berlusconi has ceded power to ECB
Italy's opposition accused Prime Minister Silvio Berlusconi on Monday of surrendering sovereignty to the European Central Bank after he pledged to speed up reforms in return for help in facing a growing market crisis.
The ECB agreed on Sunday to buy Italian and Spanish bonds to calm markets after a huge selloff last week sent yields climbing to record levels for the euro zone's third and fourth largest countries, threatening to unleash an uncontrollable spiral.
The move, which followed pressure on Rome to pick up the pace of its deficit cutting measures, came after Berlusconi pledged late on Friday to bring forward the government's target of balancing the budget by a year to 2013.
Antonio Di Pietro, head of the opposition Italy of Values party, said Berlusconi had been "dragged by the ear by the EU and international economic institutions" to the news conference where the measures were announced.
"Berlusconi should perform a service to his country for the first time and go," he said.
"Palazzo Merkel," read an editorial headline in the left-leaning La Repubblica, referring to Berlusconi's office in Rome, Palazzo Chigi, and German Chancellor Angela Merkel.
How effective the ECB's actions will be remains to be seen. Ten year Italian bond yields, which fell at the open, climbed back to reach 5.3 percent by Monday afternoon while the yield spread over benchmark German bonds reached 308, significantly higher than the equivalent Spanish spread of 295.
"The real test will come in the next few days," said Luca Mezzomo, head of macroeconomic and fixed-income research at Intesa SanPaolo. "The initial reaction from the markets was very positive but of course they would like to see how the ECB behaves if the spreads come up again."
Behind the political rhetoric, the criticism from opposition parties and unions reflect broad concern about the apparent backstage deal between the ECB and the government, suggesting growing political resistance.
European sources told Reuters last week the ECB had demanded Italy fast-track reforms and budget measures to reduce a large debt burden in return for the agreement to buy bonds.
The daily Corriere della Sera newspaper said the ECB demands for accelerated reforms were contained in a letter President Jean-Claude Trichet and Bank of Italy Governor Mario Draghi had written to Berlusconi.
Technical Government
In an interview with Repubblica on Monday, Susanna Camusso, head of the CGIL, Italy's largest union federation, demanded that Berlusconi declare "what conditions were imposed by the ECB for buying Italian bonds."
She said the text of any communication with the ECB should be published in full "without omissions so that everyone can judge at what point we are with the crisis without the veil of government lies."
Small business association CGIA also sounded a skeptical note, saying that bringing forward the balanced budget target would push up fiscal pressure, or tax revenues as a proportion of GDP, to an all-time record of 44.3 percent in 2013.
Berlusconi and Economy Minister Giulio Tremonti have so far given very little detail on what they plan to do beyond declaring they will accelerate measures agreed in a 48 billion euro austerity package approved in parliament last month.
Tremonti is due to speak on Thursday before the lower house and Senate constitutional affairs committee on the government's aim of introducing a balanced budget amendment into the constitution.
But there are growing questions about how much freedom of maneuver they really have.
Former EU Commissioner Mario Monti, seen as a possible head of a so-called "technical government" of experts which some opposition parties want to replace Berlusconi's struggling center-right coalition, said real power now lay elsewhere.
In a guest editorial in Corriere della Sera at the weekend, Monti said a "technical government" was now in any case effectively in place.
"Form is upheld, ministers remain in office. The primacy of politics remains intact. But the principal decisions are taken by a 'supernational technical government' and one could add a 'market government' spread between Brussels, Frankfurt, Berlin, London and New York," he wrote.
On Saturday, Berlusconi once again ruled out calling an election before the next due date in 2013 but he has been badly damaged by recent local election and referendum losses and has struggled to control his fractious coalition.
Last week, he promised a comprehensive reform pact with unions and employers to cut red tape, break down regulatory barriers in product and service markets, reduce the costs of government and fight tax evasion.
However no firm details are expected until September.
The CGIL has made it clear that it will not accept a deal in which the bulk of budget savings come from welfare cuts and has demanded a special wealth tax to balance such measures.
[Source: By James Mackenzie, Reuters, Rome, 09Aug11]
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