Berlusconi and Credibility (Vox Update)

Finally, Berlusconi’s time seems to be over. A slow but seemingly unstoppable landslide of rightwing MPs to the centre-left opposition is making very likely that next Tuesday the government will lose its majority in a crucial Parliamentary vote on the Stability Law. The Prime Minister may even resign before the vote. Not just for avoiding a shameful dethroning (Mr. Berlusconi’s penchant for shameless behavior is notorious). By so doing, the Prime Minister may bet on his resurrection and retain the ability to crown his on successor. If this occurs and a Prime Minister’s straw man, such as Under Secretary Mr. Letta (a journalist and former employee of Berlusconi) succeeds his mentor, nothing will change, and Italy will be doomed. The alternative, seemingly favored by President Napolitano, would be a centre-right centre-left Greek-style coalition headed by Mr. Monti. A wise economist of international reputation and no political ambitions, he may succeed into forcing a recalcitrant Parliament (après moi le deluge) into approving drastic, but evenly distributed, consolidation and reform measures, and lead the country to new elections next year.
In the meantime Italians spreads over 10 years German Bunds, are quoting today above 4.5 percent, soaring towards the levels of 15 years ago, a time when the debt/GDP ratio was as high as today’s but the primary balance was in a much better shape (see my previous post). With spreads at these levels, the LCH clearing house haircut requirements for banks borrowing against Italian collateral will further reduce the attractiveness of Italian Bonds and accelerate the roll-over crisis.
Mr. Berlusconi has lost contact with reality: according to him Italians are unaware of the crisis, as “restaurants and travel agencies are full”. The truth is that country’s shambles are well epitomized by the recent floods in Genoa and in the beautiful Cinque Terre of Liguria. Decades of abusiveness in constructions, lack of infrastructure investment and widespread corruption are finally taking a heavy toll. On the land as well as on the economy. (This column will appear on VoxEu as an update of this post)