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29 September 2013

WSJ: Italian premier pursues last-ditch rescue of government


Italian PM Enrico Letta launched a last-ditch effort to rescue his government from collapse, after conservative leader Silvio Berlusconi pulled support for the government, plunging Italy into a fresh political crisis. (Includes statement from Fitch Ratings.)

The conservative leader called on Italian President Giorgio Napolitano over the weekend to dissolve Parliament and pursue a new vote just seven months after the previous general election. But on late Sunday, Mr Letta said he would seek a confidence vote Wednesday, apparently hoping that some members of Mr Berlusconi's party—which is showing signs of a split—will still give his coalition enough support to carry on.

If Mr Letta loses Wednesday's vote, Mr Napolitano, who has opposed calling new elections, has signalled he would try to piece together Italy's fourth government in two years, either headed by Mr Letta or another figure. But that attempt is likely to take weeks. "I have no intention to govern at any cost", Mr Letta told Italian television Sunday evening. "If there is no confidence, I'll draw my own conclusions."

Italy's government breakdown could put pressure on Europe's defences against a new round of eurozone jitters. So big is Italy's €2-billion ($2.7 billion) government-debt market that renewed capital flight from the country could reawaken fears for the stability of Europe's financial system and its common currency. But until Friday, the looming government crisis hardly shook investors.

A fall of the Letta government wouldn't necessarily shatter the past year's stability in markets—unless investors lose faith in the European Central Bank's promise to intervene and buy bonds on a massive scale if bond markets need propping up. Meanwhile, the absence of a government could actually lower Italy's budget deficit and bring it closer to the European Union-mandated limit of 3 per cent of gross domestic product. That would happen because of existing measures that were to be scrapped, including an unpopular property tax on primary residences, a scheduled increase in the value-added tax rate and a tax amnesty for the gaming industry would remain on the books, bringing in more than €3 billion in revenue.

Full article


In a statement, Fitch Ratings said that the potential collapse of Italy's ruling coalition government puts the sovereign's short- and medium-term fiscal policy targets at risk and creates uncertainty at a crucial period when the 2014 budget should be finalised... Prolonged uncertainty over economic and fiscal policies, reduced confidence that public debt/GDP will fall from 2014 and failure to comply with the constitutional requirement of a balanced budget are potential rating triggers for Italy's 'BBB+'/Negative rating.

Full statement



© Wall Street Journal


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