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Bondholders and Investors to Force a Coalition Government in Italy

Italy is headed for a broad coalition government as bondholders pressure Pier Luigi Bersani andSilvio Berlusconi to set aside their rivalries and form a partnership, said Finance Undersecretary Gianfranco Polillo.

A joint government between Bersani’s Democratic Party and the forces led by Berlusconi, a three-time former premier, is “the only possible way,” Polillo said late yesterday in a telephone interview.

Italian yields surged after elections Feb. 24-25 delivered a four-way parliamentary split and cast doubt on the stability of the next government. Bersani, the top vote getter, has resisted engaging Berlusconi and said he would seek to hammer out a compromise with lawmakers elected under the upstart political movement of ex-comic Beppe Grillo. Polillo, a former adviser to a Berlusconi ally, said this strategy wouldn’t work.

“I don’t think it’s possible to expose a government to the caprice of parliamentary calculations in a situation of great difficulty like this one, in which the first thing markets look at is the governability of a country,” said Polillo “Markets won’t sit by and watch our little games.”

Polillo has served the apolitical government of unelected Prime Minister Mario Monti since November 2011. He previously was adviser to the head of Berlusconi’s People of Liberty party in lower house of parliament. Monti finished fourth in the election.

Italian 10-year yields dropped 5 basis points to 4.7 percent at 11:20 a.m. in Rome, after rising about 30 basis point since before the election….”

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