Italian prime minister Silvio Berlusconi's centre-right coalition narrowly survived a vote of no-confidence in parliament this week. It defeated a rebellion led by former allies by 314 votes to 311 in the lower house. Political turmoil has turned the spotlight on Italy and compounded worries over its prospects among already jittery investors. Italy faces a massive debt pile almost 120% of GDP, the second-highest in the eurozone and is growing too slowly to make a serious dent in it.
Italy's not alone. Spain had to pay 1.1% more for 12-month debt this week than a month ago and was threatened with a fresh debt downgrade. "There is a danger that the market will lose confidence in Spain," said Elisabeth Afseth of Evolution.
What the commentators said
Italy's latest political crisis "leaves no clear winners, only survivors", said Guy Dinmore in the FT. Without a majority in parliament, the government must now attempt to expand its coalition unlikely in this "poisoned atmosphere" or face fresh elections. Debt markets will continue to "look on with trepidation".
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Berlusconi has always been accused of concentrating on his personal life rather than Italy's problems. Now structural change is on the agenda. But given the splits in parliament, its prospects are highly uncertain. Yet there's plenty to do, as Italy's central bank governor has pointed out. Italy needs "more competition" in the service sector, more efficient public administration, and a serious clampdown on tax evasion. Deficiencies in these areas and dwindling competitiveness (thanks to rising labour costs) help explain why the economy expanded by just 1.4% throughout the past decade. Spain and Britain grew by 20% and 13% respectively, said Censis,
a think-tank.
There is no immediate emergency, said Capital Economics. But at this rate Italy is likely to need international support eventually. It could even trip up next year, when it has to refinance debt worth around 22% of GDP. That won't be easy if markets remain jittery.
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