Italian Prime Minister Silvio Berlusconi appears to be on the ropes. What numerous scandals have failed to do, a rising interest rate on Italian bonds that peaked at 6.7% may accomplish.
Northern league leader Umberto Bossi who brought down Berlusconi in 1994 has called upon the prime minister to step aside.
Bossi wants Berlusconi out so he can be replaced by another leader from the dominant People of Liberty (PDL) Party. Bossi fears that the negative momentum in the financial markets will eventually trigger a call for a caretaker technocratic government that the coalition views as a disguised coup d'etat. It would also signal disrespect for the voters who had installed the coalition in the 2008 election. At worst, they would prefer going to the voters for a decision.
The matter hinges on a vote in Parliament on financial measures designed to restore confidence. Five members of the prime minister's PDL party have announced their defection. The center-left opposition has announced that it will abstain on the vote in order to show that Silvio Berlusconi does not really control his own coalition.
The Italian lower house numbers 630 members and political observers have established a threshold of 310 votes that Berlusconi must surmount in order to keep his grip on power. He got 308. The left will now table a no-confidence vote.
The markets appear to have lost confidence in Italy's ability to liberalize labor laws and cut the government payroll. While Italy's public debt is hefty and represents 120% of annual GDP consumer and bank credit are in check. Italy has essentially fallen victim to the panic engendered by the Greek situation and the fear that the haircuts imposed on investors in Greece could be revisited in Italy.
The securities markets are betting that Silvio Berlusconi will leave and his successor will prove more capable. Nobody wants to contemplate the prospect that Italy, the third-largest economy in the European Union, will go the way of Greece.