MacroScope

Confidence in Italy?

By Mike Peacock
December 11, 2013

Emboldened by the splitting of Silvio Berlusconi’s party and the media mogul’s expulsion from parliament, Prime Minister Enrico Letta has already won one confidence vote in parliament. Today, he has called another to cement his coalition’s standing.

Letta is expected to win with the help of a centre-right group which split from Berlusconi but tensions are rising between his centre-left PD, now by far the biggest party in the coalition, and the small group led by Interior Minister Angelino Alfano.

That’s partly because there’s a new man in town who may press for more left-wing policies that would enrage the centre-right.

Matteo Renzi, the 38-year-old mayor of Florence, was anointed leader of the PD on Sunday and has wasted no time making his presence felt. He will not join the government but as party leader he is favourite to lead the PD into the next election as its candidate for prime minister. He has indicated he will support Letta in the confidence vote and beyond.

It’s the smart move, leaving it to Letta to forge agreement on a new electoral law capable of delivering more durable governments. Renzi can then reap the dividends, or so he hopes.

The existing electoral law has consistently delivered unstable governments. After Italy’s top court ruled it was unconstitutional, Letta may have the impetus to tackle it head on and cut through the vested interests of the parties which fear a new system could harm their chances at the ballot box.

The prospect of stronger Italian governments would raise investor hopes that tough economic decisions could finally been taken. But a counter fact is that Renzi has said he would not feel compelled to meet the EU’s budget deficit limits.

Italy will sell 5.5 billion euros of one-year bills at its last debt sale settling in 2013. One-year yields hit a euro era low at the previous mid-November auction.

Slovenia looms large. The government will publish an external audit of the banks on Thursday, which will say how much cash the government must inject to keep them afloat. We’ve heard from sources that the tiny euro zone member needs as much as 5 billion euros to recapitalize largely state-owned banks.

The central bank said on Tuesday that sufficient funds were available to avoid Ljubljana needing an international bailout but while the euro zone might breathe a sigh of relief, Ljubljana’s problems are far from over. A fire sale of state assets will be triggered and the banks are so embedded into the Slovene economy that deleveraging will cause great damage.

Euro zone finance ministers are creeping snail-like towards a deal on banking union with fresh proposals circulated yesterday. A draft plan spells out how a new agency may close failing banks and how the cost can be shared out among different national funds in the scheme.

That would seem to take the heat out of an argument about who should make the call on a failing bank – most countries were content for the European Commission to do so but Germany wanted decisions taken by the EU’s 28 finance ministers, where it holds more sway.

But linking up different national funds will take 10 years and it will fall to individual countries to cover the costs in the mean time. So the readiness to share costs is still questionable leaving life in the doom loop yet. A succession of daily meetings will aim to seal agreement when the ministers meet on the eve of the leaders’ two-day summit on Dec. 19-20.

Police are steadily clearing anti-government protesters out of the centre of Kiev and have just stormed City Hall and turned hoses on people demonstrating against a government decision to rebuild trade ties with Russia rather than move closer to the European Union.

President Viktor Yanukovich gave no ground yesterday over his decision to walk away from the EU. The cost of insuring Ukrainian debt rose to the highest in four years and bond prices fell sharply. Opposition leader Vitaly Klitschko meets France’s foreign minister in Paris.

An economy already close to running out of funds faces big energy bills from Russia. The presumption remains that Moscow will cut Ukraine some slack but reports that Russian gas export monopoly Gazprom had deferred payments have been denied.

France is getting deeply involved in its former colonial African outposts. President Francois Hollande flew into Central African Republic hours after two French soldiers were killed yesterday and praised his troops for helping avert a slide into civil war. French forces have also killed 19 Islamic fighters in northern Mali.
German Chancellor Angela Merkel meets the President of Mali in Berlin.

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/