Italy's Senate rushed to pass laws that clear the way for establishing a new government in a bid to restore confidence in Europe’s second-biggest debtor. The new administration may be led by former EU Competition Commissioner Mario Monti, - a man markets appear to trust.
This morning’s headline on Italy’s leading financial newspaper, Il Sore 24 Ore, read simply ‘Hurry Up.’
With Italy in the eye of Europe’s financial storm, investors want a quick solution. So indications that Prime Minister Berlusconi may step aside within days and give his backing to a national unity government, was a rare piece of good news for the markets, which reversed their two-day losing streak.
Economist Nicola Borri of the International University of Social Studies in Rome, says Italy’s politicians need to act fast.
“First thing is, we need to implement the structural reforms that will be able to increase the growth rate of our economy," said Borri. "Our problem is a long term problem - the fact that we are not growing, and if we do not grow we are not going to be able in the future to pay our debt, and that is what markets fear.”
Italy’s 10-year bond yields, effectively the interest rate the country must pay on loans, stabilized around seven percent, still barely sustainable.
Rome also paid less to sell one-year treasury bills than many had predicted. The markets’ short-term fear, says Borri, is political instability.
“Right now our political arena is crazy," he said. "We all know that Berlusconi has ‘almost’ resigned, we do not know what is going to happen after, if we are going to have elections, if we are going to have a grand coalition government, so we need more clarity on that.”
One man has emerged who might lead such a coalition government, former European Union Competition Commissioner Mario Monti - the current favorite to take over as a so-called ‘technocrat’ leader to steer Italy into calmer waters.
Analyst Nicola Borri says Monti is a respected economist who should have a calming effect.
“Markets know what he has in mind," said Borri. "He has in mind I would say two or three big reforms that I would say most economists agree Italy desperately needs, but it seems neither the left nor the center-left nor the right or the center-right are able to implement.”
Analysts say that political deadlock will have to be loosened for Italy’s long-term stability.
Silvio Berlusconi retains considerable support for both his style of governance and character.
“Berlusconi is the captain if the ship and the left party wants to sink the ship," said Alessandro Stuart, assistant to the head of the Rome cabinet which is led by Berlusconi’s party. "What they do not realize is that we are all on the same ship because they have never worked like us normal people. Without a captain like Berlusconi Italy cannot move forward.”
But with Berlusconi already vowing to step down, analysts say Italy must act quickly to appoint a successor if the country is to be saved from Europe’s debt storm.