They rushed to shore up the prime minister, Mario Monti, after his discredited predecessor, Silvio Berlusconi, pulled the plug on his support for the reforming technocratic government, sending share prices down in Milan and increasing Italy’s borrowing costs.
The Spanish government worried about the spillover as it came under renewed pressure to seek a eurozone bailout or bond-buying help from the European Central Bank.
With EU finance ministers due to discuss a new eurozone banking supervisor on Wednesday followed by a summit on Thursday and Friday devoted to shoring up the longer-term viability of the currency, the Italian drama shifted to Oslo, where EU leaders, minus David Cameron, had gathered to receive the Nobel peace prize.
Herman van Rompuy, who will chair the summit and was receiving the prize, said there was no alternative to the policies pursued by Monti.
“Mario Monti was a great prime minister of Italy and I hope that the policies that he put in place will continue after the elections. There is no alternative to sound public finances and a competitive economy,” he said.
Chancellor Angela Merkel of Germany conferred with Monti in the Norwegian capital as her foreign minister warned of a domino effect from more financial turmoil in Italy.
“Italy can’t stall at two-thirds of the reform process,” said Guido Westerwelle. “That wouldn’t cause turbulence for just Italy, but also for Europe.”
The impact of the weekend events in Rome was promptly reflected in the financial markets, with Italy’s long term borrowing costs rising by 6% and shares dropping by more than 2%.
In New York, Bank of England governor Mervyn King said a “black cloud” of uncertainty in the eurozone had hit any recovery in UK investment spending.
Speaking to the Economic Club of New York, King said he could not see any easy solution to the single currency zone’s problems.
El Pais, the influential Madrid newspaper, pressed the Spanish government to request help from the eurozone so that the ECB in Frankfurt could launch its first bout of promised bond market interventions. Spain’s borrowing costs also rose, by a fifth of a percentage point.
“Every time there are doubts … for example, today in the case of Italy, when there are uncertainties about the political stability of a neighbouring country such as Italy, that immediately affects us,” Luis de Guindos, the Spanish finance minister, told state radio.
The chief of the eurozone’s permanent bailout fund, Klaus Regling, who has generally been upbeat about Europe having seen off the worst of the euro crisis, also worried about a broader setback following Monti’s statement of intent to resign after getting the Italian budget passed this month. “In the last year Italy has pushed through important reforms,” Regling told the Süddeutsche Zeitung. “So far, the markets have honoured that, although they have reacted with concern to the developments of recent weeks.”
As the dust settled on the Berlusconi comeback and the Monti resignation, it seemed Italy would be called to the ballot box on February 17 or 24. Monti refused to be drawn on whether he would run for prime minister.
“I’m not considering this particular issue at this stage. All my efforts are being devoted to the completion of the remaining time of the current government,” he told reporters.
That is no small task: officials warned of “institutional chaos” if a measure abolishing some of Italy’s provinces is not approved before the government falls. The provinces have already been stripped of some responsibilities, so in some parts of the country no one would responsible for schools, roads and rubbish collection.
As business representatives lobbied behind the scenes for a Monti candidacy, the leader of the centre-left Democratic party, Pier Luigi Bersani, warned the prime minister to stay out of the political fray while adding that he could “still be useful”. Bersani did not elaborate beyond referring cryptically to “the need to have an association [with Monti] in the name of Italy”.
Bersani and other centre-left leaders were reportedly concerned that a party led or sponsored by Monti could split the vote and make an already confused situation chaotic.
The outgoing prime minister – a practising Catholic – did, however, get a scarcely veiled endorsement from the church. The leader of the Italian bishops, Cardinal Angelo Bagnasco, said: “It would be a mistake in future not to take advantage of someone who has contributed in a rigorous and competent way to the credibility of our country”.
That sentiment was echoed at the ECB, where influential executive board member Jörg Asmussen said Monti had “achieved great things in a short amount of time”.
‘A convinced European’
Silvio Berlusconi on Monday night hit back at critics of his decision to run again for prime minister and suggested that the uproar was part of a plot to buy up Italian companies on the cheap.
In a statement, the 76-year-old TV magnate said comment by some foreign politicians and newspapers was “offensive not so much in relation to me as to the freedom of choice of the Italian people”. He added that he had always been a “convinced European”.
Berlusconi said it would be all to easy to link this interference in Italy’s affairs with “the umpteenth speculative manoeuvre designed to weaken our companies and turn them into easy prey for foreign buyers”.