Just one week ago, economist Ken Goldstein, of The Conference Board, intimated in an NACM interview that the media attention on problems with Greek debt and its political leadership were merely a red herring foreshadowing a much bigger story of problems in Italy. Well, market-watchers and mainstream media hacks effectively can cue the trite “Rome is burning” sound byte as Italy’s prime minister has lost his power amid evaporating support from some previous close allies over the handling of the nation’s debt problem.
Days after costs for borrowing in the Italian bond market have soared to their worst and most expensive level since 1997 this week on repeated and indentifying calls for Prime Minister Silvo Berlusconi to step down, the Italian leader confirms he will do just that. Berlusconi said he will step aside if/when the debt reform package is passed by the Italanian Parliament.
The last straw, unless the sometimes definate leader pulls an about-face, came in what was considered a routine budget vote Tuesday. More than half of the lawmakers in the Italian Parliament, abstained from voting, indicating Berlusconi has effectively lost majority power over the goverment even as he said, at the time, he would not resign. While, NACM Economist Chris Kuehl notes Berlusconi has been close to ouster before on various public embarrassments and scandals only to survive, this one rings differently because he lost some of his top supporters.
That said, Simonson told NACM on Tuesday that the new austerity measures, and more severe ones at that, need to be enacted quickly. Still, he is confident in Italy’s ability to come through the other end of this debt crisis without doing too much collateral damage to other EU nations and the global recovery.
“The Italians are very adaptable,” he said. “They will grumble and maybe have some general strikes but buckle under to austerity -- This crisis will pass more easily than Greece.” He suggested that the bigger question, and one that’s not far behind, will be talk about the euro as a currency and the 1 trillion euro bailout fund. “That’s next week’s headline and market headache.”
Meanwhile, after much prodding and a massively failed attempt to sabotage the EU’s newest Greek bailout, Greek Prime Minister George Papandreou finally has confirmed a readiness to step aside as leader in deference to a unity government with shared power among his and an opposition political party. It’s about the first news taken as positive by the markets since the EU bailout plan was unveiled late last month, of which its market-calming, investment-boosting potential was scuttled within a couple of days by a Papandreou trying to look good and stay powerful amid angry Greek voters uninterested in making additional sacrifices for the nation’s runaway debt.
Brian Shappell, NACM staff writer