Opinion / Columnist
Berlusconi's days look numbered
08 Nov 2011 at 14:49hrs | Views
The Italian government's victory in the parliamentary vote today does nothing to alter the view that Silvio Berlusconi's days as Prime Minister are numbered.
Although the Government won the vote, it failed to gain an absolute majority (it only won 308 of the 630 votes – 320 MPs did not take part), implying that, unless Berlusconi resigns, the Government may soon face a confidence vote.
The hope will be that Italy can quickly gain a new government with the stomach and the ability to implement major structural reforms. But this alone will not solve Italy's woes. The recent run of weak economic data suggest that Italy will soon fall back into recession - we expect the economy to contract by 1.3% or so next year and about 2% in 2013.
Against this backdrop, the Government will struggle to balance its budget by 2013. What's more, even if structural reforms are quickly implemented, it will still probably take a decade or more of wage and cost deflation for Italy to regain competitiveness within the euro-zone, implying that the economy may suffer another decade of near stagnation.
Accordingly, unless the euro-zone is willing to provide Italy with years of expensive financial assistance, we think that Italy will eventually come under huge pressure to default, regardless of who is in power.
Although the Government won the vote, it failed to gain an absolute majority (it only won 308 of the 630 votes – 320 MPs did not take part), implying that, unless Berlusconi resigns, the Government may soon face a confidence vote.
Against this backdrop, the Government will struggle to balance its budget by 2013. What's more, even if structural reforms are quickly implemented, it will still probably take a decade or more of wage and cost deflation for Italy to regain competitiveness within the euro-zone, implying that the economy may suffer another decade of near stagnation.
Accordingly, unless the euro-zone is willing to provide Italy with years of expensive financial assistance, we think that Italy will eventually come under huge pressure to default, regardless of who is in power.
Source - Capital Economics
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