Italy’s Supreme Court last night upheld Silvio Berlusconi’s conviction for tax fraud and a four-year jail term, to the fury of the man who has dominated Italian politics for 20 years and throwing a fragile coalition government into peril.
The markets have been sanguine about Italy, maybe with good reason, since its reform and debt-cutting programme is well in train and no one seems to want fresh elections. But that could change for a country that has always been viewed as “too big to bail” by the euro zone.
Italian bond futures have even risen a little, taking a wait-and-see view. There is of course the little matter of the U.S. non-farm payrolls report looming later, with markets still fixated on the chances of the Federal Reserve slowing its bond-buying programme this year.
For investors, the equation that the bonds of countries like Italy offer a decent return and the European Central Bank has taken default risk off the table has held good for nearly a year. And to give some perspective, Italy can borrow for 10 years at about 4.4 percent having been forced to pay seven percent and more at the height of its crisis in late 2011.
Given his age, Berlusconi is unlikely to serve any jail time and the court ordered a review of the ban on him holding political office.