Thursday, December 6, 2012

Italy's deep consumer recession allows Berlusconi to undermine Monti's government

Italy continues to be mired in a prolonged recession (see discussion from May). In particular, consumer recession is most severe - as can be seen in the following three indicators:

1. Unemployment rate is grinding higher.


2. Consumer confidence is at new lows.


3. Retail Sales PMI shows sharp ongoing contraction.

Source: Markit

This situation creates a perfect environment for opportunistic politicians. And one of the most crooked politicians in the developed world, Silvio Berlusconi is making his move (see discussion). With the election coming up next year, Berlusconi wants to blame Mario Monti for the current recession.
Bloomberg: - “We can’t go on like this,” Berlusconi said in a statement announcing that he was considering running again in the election. “I can’t allow my country to precipitate in a recessionary spiral without end.”
For the first time recent history, Monti put Italy on the right fiscal trajectory, finally gaining respect for the nation's government across the EU as well as globally. However, after experiencing the equivalent of a "fiscal cliff", Italy went into a recession. Given the severe but much needed fiscal measures, it was inevitable.

Now Berlusconi is beginning to undermine Monti in order to improve his chances to win next year's elections. Italy had one thing going for them recently: government borrowing costs have been declining. But the prospect of Berlusconi in power is making Italian bond markets uneasy again.
Bloomberg: - Former Prime Minister Silvio Berlusconi threatened to withdraw his party’s support from his successor, Mario Monti, leaving the government teetering and sending Italian bonds tumbling.

Monti today postponed a cabinet meeting at his office in central Rome and rushed to the nearby Senate to attend a confidence vote after Berlusconi allies announced a mass abstention. While the economic stimulus bill survived, Monti faces another confidence vote in the lower house today and the remaining months of his tenure were placed in doubt.
Of course what else should one expect from a crook who has been convicted no less than five times for perjury, corruption, false accounting, and tax evasion (and has been embroiled in a case involving his relationship with underage girl.) Berlusconi's victory could be a major setback for Italy, reversing recent progress on fiscal sustainability, creating a rift with Germany, and destabilizing the Eurozone periphery bond markets.
From our sponsor:
Related Posts Plugin for WordPress, Blogger...
Bookmark this post:
Share on StockTwits