Berlusconi ministers' resignation cuts Italian stocks

Milan's stock exchange is down on the first day of trading since former Italian premier Silvio Berlusconi demanded his five ministers quit premier Enrico Letta's fragile coalition government over the weekend. At least three say they will reluctantly comply in a rare challenge to Berlusconi's leadership.

Former premier's order to quit cabinet chafed by key supporters

Former Italian premier Silvio Berlusconi appeared to backpedal in his strategy aimed at collapsing Italy's fragile coalition government and triggering early elections, after he took a softer tack in his online comments that he would continue to back the governing coalition with certain conditions. (Tony Gentile/Reuters)

Milan's stock exchange fell in the first day of trading since former premier Silvio Berlusconi demanded that his five ministers quit Italy's fragile coalition government.

Markets opened in Milan down 1.6 per cent at 17,368.52 on Monday, while Italy's 10-year government bond yield — a measure of investor wariness — was up 0.08 percentage points at 4.50 per cent.

Though Italy has not needed a financial bailout like other countries that use the euro, such as Greece and Portugal, it has high debts that have compelled successive governments to instigate wide-ranging economic reforms.

"If investors had been hoping that common sense would prevail over the weekend, then they would have ended up sorely disappointed," said Michael Hewson, senior market analyst at CMC Markets. "Any other outcome, would probably have been wishful thinking and so it has proved."

The political uncertainty only adds to concern that the reform program will slip.

Berlusconi had ordered the resignations in a show of solidarity ahead of a Senate vote to strip him of his seat because of his tax-fraud conviction and prison sentence. But at least three of his five ministers in Premier Enrico Letta's government, where Berlusconi's Freedom People party is the main partner, said they would only reluctantly comply with that order because Berlusconi had picked them for their ministry posts.

It was a rare challenge to Berlusconi's longstanding leadership of his centre-right populist movement. The three ministers indicated they might help to keep Letta's coalition intact.

Letta has called a confidence vote in Parliament on Wednesday to determine if his five-month-old government can survive.

Berlusconi appeared to backpedal on Sunday, a day after he ordered his ministers  in his strategy aimed at collapsing Italy's fragile coalition government and triggering early elections, after some key supporters chafed at his order to quit the cabinet.

Let me tell you, if you say some prayers for Italy these days, it will certainly be useful.- Italy Premier Enrico Letta on his government's chance of survival

The political uncertainty only adds to concern that the reform program will slip.

"I thoroughly understand his (Berlusconi's) state of mind, but I cannot justify or share the strategy," said Health Minister Beatrice Lorenzin. Another close aide to Berlusconi, Reforms Minister GaetanoQuagliariello, said he would follow his conscience in the confidence vote.

Speaking by telephone to rank-and-file members of his part at a Naples rally, Berlusconi called for "elections as soon as possible" and boasted "we will win." But hours later, he suddenly took a softer tack.

In online comments, Berlusconi said he would continue to back the governing coalition but only to pass specific measures on his party's agenda, namely averting an imminent increase in Italy's sales tax and the elimination of a homeowners' tax due in December.

"We know how to distinguish the real interests of the citizens," Berlusconi said, referring to himself and his lawmakers.

Berlusconi faces Senate vote

A cabinet meeting Friday night was supposed to earmark the funds to avert the sales tax increase. But escalating tensions in the coalition over Friday's vote by a Senate committee on Berlusconi's seat dominated the session. The tax hike is set to go into effect on Tuesday.

Italy's top criminal court in August upheld the tax fraud conviction against Berlusconi, in a case dealing with acquisition of film rights for his media empire. It also upheld his four-year prison sentence.

In 2012, the Italian parliament, including Berlusconi's own conservative lawmakers, passed a law requiring anyone sentenced to more than two years in prison to be banned from public office for six years.

On Friday, the Senate committee, where Berlusconi's lawmakers are in the minority, is expected to vote to strip him of his Senate seat because of that law. Eventually, the entire Senate must vote on whether he loses his seat.

Letta, incensed that nearly all of the senators in Berlusconi's party vowed last week to quit their seats if the media mogul is pushed out of the Senate, said it was pointless to approve any more measures to help the economy until parliament delivers assurances, with a confidence vote that the shaky coalition can survive. That vote is expected on Wednesday.

Another ban awaits Berlusconi

On Sunday, Letta had this to say about his government's chances for survival: "Let me tell you, if you say some prayers for Italy these days, it will certainly be useful."

President Giorgio Napolitano picked Letta to lead the unusual coalition of bitter foes from left to right after two months of political squabbling following inconclusive national elections in February. Napolitano said Sunday he would call elections only if Letta's government fell and political leaders couldn't come up with another viable coalition.

Later, Napolitano and Letta conferred at the presidential palace about the situation "created by Berlusconi's statements and the ministers' resignation," the president's office said. Both men agreed that Letta's best course was to lay out his strategy in a speech to parliament, Napolitano's office said. The date has yet to be set.

A law aimed at reducing prison overcrowding reduces Berlusconi's sentence to one year. Because of his age, Berlusconi, who turned 77 on Sunday, can decide to serve the time under house confinement or by performing community service, a choice he must make by Oct. 15.

In upholding the conviction in its Aug. 1 ruling, the high court directed a Milan appeals court later this year to determine the duration of an accompanying ban of serving or running for public office. That ban is separate from the consequence of the 2012 law that the Senate committee is to ponder this week.

The high court said the separate ban should run from one to three years. So whatever happens in the Senate this week, Berlusconi still faces another ban, which could lead to another round of debate in the legislative body.


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