January 7 2013

Berlusconi agrees coalition with Northern League and says he wants to be economy minister. John Hooper: deal could scupper centre-left. Stock markets fall. European Commission president Jose Manuel Barroso declares that the euro has been saved…

Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Silvio Berlusconi reaches Italian election deal” was written by Graeme Wearden, for guardian.co.uk on Monday 7th January 2013 14.29 UTC

2.29pm GMT

Round-up: Reaction to Berlusconi’s move

The Berlusconi-Northern League alliance is getting plenty of coverage today – here’s a round-up.

My colleague in Rome, Lizzy Davies, points out that Mario Monti has thrown himself into the election race:

Since declaring his intention to take part in the election in order to keep Italy on the road to fiscal discipline and economic recovery, Monti, 69, has abandoned much of his studiously apolitical image. He has engaged in multiple television and radio interviews and even a live Twitter Q&A session in which – to the dismay of some supporters – he used smiley emoticons and the thoroughly unprofessorial exclamation “wow!”.

He has also sharpened his criticism of Berlusconi, describing him as politically and personally volatile and drawing attention to the former prime minister’s often contradictory statements.

Bloomberg has the full quote from Berlusconi about his political ambitions, and it’s a peach:

“In Italy, the prime minister has no real power beyond setting the agenda for cabinet meetings,” Berlusconi said on RTL. “The position that seems to me would allow me to take advantage of all my experience would be finance minister, which would allow me to demonstrate once again that I have no political ambitions.”

AP points out that the relationship between Berlusconi and the Northern League has been pretty rocky:

While the Northern League has ruled in coalition with Berlusconi three times, the relationship has been rocky at best — with the League being behind the downfall of previous Berlusconi governments.

(although Silvio continues to blame his November 2011 ousting on an international plot to drive up Italy’s borrowing costs)…

And Reuters argues (like John Hooper at 10.27am) that the alliance could be rather bad news for left-leaning rivals:

By allying with the League in its northern strongholds, Berlusconi hopes to be able to stymie a centre-left government in parliament.

The League wants strict controls on immigration and favours giving more power and autonomy to Italy’s 20 regions. It wants more tax revenue to go directly to the regions, saying the rich north is picking up the tab for a south it brands as corrupt and economically backward.

1.12pm GMT

Back to Italy, and analysts reckon that Silvio Berlusconi’s new alliance with his old friends at the Northern League will prompt other parties into action

Silvio Peruzzo of Nomura has predicted new talks between the centre-left parties and Mario Monti, who is running at the head of a centrist coalition.

Peruzzo said (via Bloomberg):

The immediate consequence of the pact is that Monti’s negotiation power vis-a-vis the center-left has increased very dramatically…

It will certainly accelerate the dialog [between the two sides].

Meanwhile, some photos of Berlusconi announcing his new alliance this morning (on Italian radio) have arrived, showing the media mogul in good spirits.

12.53pm GMT

Political developments in Greece – the junior coalition partner Democratic Left has expelled two of its MPs today.

Odysseas Voudouris and Paris Moutsinas received their marching orders after supporting a move to extend a probe into the Lagarde List of potential tax evaders to include Evangelos Venizelos, former finance minister and current leader of the Pasok party (another coalition member).

Voudouris and Moutsinas have been on thin ice since last November when they disobeyed orders to abstain on the 2013 austerity budget and voted against it.

The move cuts the government’s majority in the 300-seat parliament to 164, down from 179 when the coalition was formed in June.

Updated at 1.14pm GMT

11.49am GMT

Barroso: Threat against the euro has been overcome

Just in – European Commission president Jose Manuel Barroso has declared that the euro has been saved.

Speaking in Lisbon this morning, Barroso argued that the worst of the eurozone crisis is behind us. He said:

I think we can say that the existential threat against the euro has essentially been overcome.

In 2013 the question won’t be if the euro will, or will not implode.

But is Barroso right?

His comments are more upbeat than Angela Merkel’s New Year message (she argued that the crisis ‘certainly wasn’t over’). And several analysts, such as Larry McDonald, argue that Europe is a long way from fixing itself:

Few analysts are predicting a euro break-up this year. Instead, a long grind is forecast. But in the long term, public anger could derail the eurozone – especially if economic conditions don’t improve.

As Gary Jenkins of Swordfish Research puts it:

Aside from Greece the risk is very much that the economic hardship continues in certain countries that lead to even higher levels of unemployment and eventually results in political change as continued austerity becomes unpalatable for the people.

So a slower burning risk which will only play itself out as the next couple of years develop.

Updated at 12.16pm GMT

10.55am GMT

Elsewhere in the eurozone… Greek prime minister Antonis Samaras is jetting to Berlin today for dinner with ECB president Mario Draghi, and then a meeting with Angela Merkel on Tuesday.

The two leaders will discuss recent developments in Greece, according to Merkel’s spokesman Steffen Seibert, who indicated that it will be a cordial event:

It is natural that we should take the opportunity to underline once again the progress that has been made in Greece in terms of structural reforms.

Update: We’re expecting statements from Merkel and Samaras at 10.30am GMT tomorrow, before they actually sit down. That may limit their usefulness….

Updated at 11.00am GMT

10.40am GMT

Silvio Berlusconi didn’t skimp on ceremony when he announced the deal with the Northern League this morning, declaring:

Habeamus papam

which is the term used when the Vatican has agreed on a new Pope.

That’s via the FT, which also flags up that the agreement was signed at 1.30am this morning.

Updated at 10.40am GMT

10.27am GMT

Analysis: Why Berlusconi’s Northern League deal really matters

Here’s Southern Europe editor John Hooper’s explanation of how the alliance between the People of Liberty Party and the Northern League could have a major impact on next month’s election:

To understand why Berlusconi’s pact with the Northern League is so important you need to start with the Italian constitution. Unlike Britain and France, Italy has a parliament in which the two chambers have equal powers. So, to govern Italy (if anyone can be said to have governed Italy!), you need a majority in BOTH houses.

In 2005, Berlusconi’s then government brought in a new electoral law that made it perfectly feasible for a party to win the popular vote and take control of the lower house, the Chamber of Deputies, but fail to get an outright majority in the Senate. The reason is that, in each region, the party topping the poll in the Senate vote gets a hefty bonus to give it 55% of the upper house seats in that region. So parties whose following is concentrated in a particular region (like
the Northern League) can achieve a disproportionate representation.

Then, as now (see below), the centre-left was ahead in the polls and it was an open secret that Berlusconi – acknowledging he could not win the election – wanted to lay a minefield for the likely victors. The centre-left did indeed win in 2006, but obtained only a razor-thin majority in the upper house and fell after two tumultuous years of knife-edge votes in the Senate.

At which point prime minister Romano Prodi left office to be replaced by…. (yup, you’ve guessed it).

John adds:

That – more than a Berlusconi victory – is the threat now. The
League’s votes should deliver him two of the most populous of Italy’s 20 regions, Lombardy and Veneto. Seventy three of the 315 seats in the next Senate will be decided in just those two constituencies.

10.05am GMT

Stock markets drop back

Europe’s three largest stock markets have fallen this morning, as has the euro:

FTSE 100: down 16 points at 6074, – 0.25%

German DAX: down 28 points at 7747, -0.4%

French CAC: down 14 points at 3716, -0.4%

Spanish IBEX: up 4 points at 8439, +0.04%

Italian FTSE MIB: down 26 points 16933, – 0.15%

It appears that the wave of optimism following the US fiscal cliff short-term fix has petered out, as traders face the fact that America’s debt problems are far from solved.

Peter O’Flanagan of Clear Currency commented:

Fiscal concerns are still likely to be a major issue for the next several months and despite coming to an agreement on smaller scale tax hike hikes, these will still pose as headwinds to economic growth.

9.33am GMT

Berlusconi: I’d rather be economy minister than PM

Silvio Berlusconi says he will be the “leader of moderates” in next month’s election, thanks to the alliance with the Northern League announced this morning (see 8.23am onwards).

However, he says he isn’t planning to be prime minister (hmmmm), suggesting his close ally Angelino Alfano was more likely to take the reins in the event of a right-wing triumph.

Speaking to Italian radio, Berlusconi added that he would prefer to serve as economy minister – news which rather tickled our Southern European editor, John Hooper:

Updated at 9.33am GMT

9.15am GMT

Latest Italian polling data

Opinion polling data released yesterday showed that Italy’s left-wing Democratic party (PD) is holding a solid lead.

However, Silvio Berlusconi’s PDL and Mario Monti’s new centrist coalition have both gained support.

IPSO reported that the PD is on track to win 32-33% of votes, rising to 38-39% when votes for its electoral allies are included.

PDL is polling at 17-19%, up from 13p-16% a month ago.

Mario Monti’s group have 14-15% of support, up from 10% a month ago (before Monti formally announced his plans).

IPSO also found that a Berlusconi-Northern League partnership could win 28% of the vote.

Updated at 9.23am GMT

8.49am GMT

Italian bond yields rise

Italian sovereign debt has fallen in value this morning.

The Italian 10-year bond has lost around 1%, pushing up its yield (the measure of borrowing costs) up to 4.322% (from 4.27% on Friday).

Not a big move, but perhaps a sign that Berlusconi’s new alliance is causing some concern:

Updated at 8.50am GMT

8.42am GMT

To reach this deal, Silvio Berlusconi has made peace with his former ally, Roberto Maroni, who leads the Northern League.

The two men had been allies in the same government, but fell out at the end of 2011 – Maroni was one of the ministers who publicly called for Berlusconi to step down.

So why have they kissed and made up? Well, both men have a lot to gain from the alliance. The Northern League’s support has fallen below the 8% level that determines whether a party wins a seat, so Maroni must hope the deal will help avoid a political wipeout.

But the talks haven’t been easy. As the Financial Times reports:

Mr Maroni has demanded that Mr Berlusconi give up his candidacy as prime minister and to guarantee that a large slice of tax revenues from the north remain there, rather than be diverted to subsidising the weaker south.

Mr Berlusconi, insisting that a deal could be reached, said in a television interview that he could even serve as foreign or finance minister in a future coalition with the Northern League, although few politicians take that possibility seriously.

Updated at 9.24am GMT

8.23am GMT

Silvio Berlusconi reaches coalition deal

Good morning, and welcome to our rolling coverage of the eurozone financial crisis and other key events across the world economy.

Let’s start with some breaking news from Italy: Silvio Berlusconi has reached a deal with his former allies, the Northern League, in a move that may seriously undermine his centre-left rivals in next month’s general election.

Berlusconi’s PDL (People of Liberty) party and the Northern League will run as a coalition in February’s vote, competing together in the crucial seats in Northern Italy.

The two parties (and former coalition allies) reached the agreement following behind-the-scenes negotiations. By teaming up, PDL and the League won’t split the vote in northern regions such as Lombardy, increasing their chances of success and making it harder for the left-wing Democratic party to win there.

Political analysts believe the deal cuts the odds of Pier Luigi Bersani’s Democrats winning an overall majority – potentially destabilising the euro area.

Here’s some early reaction to the news:

With the Democratic party ahead in the polls, and technocratic PM Mario Monti also picking up support, next month’s election is going to be fascinating -– especially with Berlusconi determined to play a part.

I’ll be tracking reaction to the deal, and other developments, through the day …

Updated at 9.25am GMT

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