Italy’s debt crisis came to a head this week, and Silvio Berlusconi paid the price. It became apparent that the much-maligned Prime Minister would be removed from office after the opposition he faced following his failure to enact reforms aimed at cutting the massive Italian debt became too strong. Italy currently is experiencing a debt-to-GDP ratio of 120%, which translates into almost two trillion Euros of debt. Bonds have jumped past 7% yield and are at 7.4% and climbing, the highest since the introduction of the Euro. The northern part of Italy remains relatively well off in comparison to the southern portion, where trash is not even being collected. Jobs are hard to come by, with many companies blocking out more qualified graduates in preference for the sons of business owners.
In a routine budget issue, Berlusconi faced a vote that would determine whether he still had the confidence of Italian lawmakers. While Berlusconi is no stranger to narrow margins of victory in his support votes (he has survived votes of confidence by as little as three votes), what support he had on the issue was not enough. He gained only 308 votes of the possible 621, which is enough to win a relative majority but not enough to maintain an absolute majority. Berlusconi would remain in power through the process of enacting the austerity measures, but would step down immediately after. With Berlusconi removed, there are two possible scenarios that come at the hand of 86-year old Italian President Giorgio Napolitano. The first is that Mario Monti, a respected economist, would be called upon to help Italy’s austerity problems and would help lure abandoned investors back to invest in Italy as their bonds continue to climb towards record rates. Another option would be to hold emergency elections, which would still allow for Berlusconi to be voted back by the Italian people, though whether or not he would consider doing that is now in doubt. However, now it seems Berlusconi may be losing favor even among the Italian people.
After the failed vote, it became apparent that Berlusconi would have no option besides removal from office when Berlusconi’s biggest allies, chief among them Umberto Bossi, opted to tell Berlusconi he should step down for the good of the country. According to The New York Times, Berlusconi was seen writing the words “8 traitors” on a piece of paper along with the word “resignation,” a reference to Berlusconi’s lost support from his closest allies.
Berlusconi’s last stand came about due to a mounting fear that Italy would be the next victim of the European debt crisis that has already is claiming Greece as a victim. Italy is one of Europe’s largest economies, and cannot be saved by the bailout fund due to its massive size. A main issue is the 7% Italian bonds. Yields have risen rapidly and are forcing investors to scatter; even in the US the stock market fell 389 points on Wednesday over Italian bond concerns. If bonds continue to act in such a volatile nature they are in risk of being downgraded, and investors are fleeing, adding to the complexity of the situation.
Berlusconi showed an inability to enact measures that would prevent Italy’s economy from crumbling, taking the entire Eurozone down with it. Berlusconi’s quirky personality and curious views made him a once-popular Italian political figure, but the problems Italy faced proved too much for him and now Italy must move forward with uncertainty, massive debt, risky bonds, and an unhappy public. Concerns are rising and now Italy’s future, even without Berlusconi, is in doubt. In the end, it was not Berlusconi’s sex scandal, in which he was convicted of having sex with a 17 year old, or his corruption charges, which did him in.
The buck is passed to Napolitano, who could institute a “technocratic government” whose sole purpose is to pass sweeping economic reforms, or instead turn over a new leaf politically, holding elections again. The key to reform is stability, but the options to get to stability are scarce, and whatever the future of Italy is, it will have to be without the man who has, for better or worse, led Italy to the point of no return.