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Italy at ‘point of no return’ on austerity, PM front-runner says

Partito Democratico (PD) leader Pier Liugi Bersani gestures as he talks at the Chamber of Deputies in Rome on December 7, 2012.

TONY GENTILE/REUTERS

The probable next prime minister of Italy, Pier Luigi Bersani, is telling Berlin and Brussels and investors in between what they want to hear: If he wins the election, economic reform and fiscal rigour are here to stay.

Meeting the foreign press association Thursday morning in Rome, Mr. Bersani, the leader of the Partito Democratico (PD), the centre-left Democratic Party, said that the reform agenda mapped out by technocrat Prime Minister Mario Monti has reached the "point of no return" and cannot be abandoned.

"Discipline and credibility are points we cannot turn back from," he said.

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His message came as Italy received a rare bit of good news on the financial front. The Italian treasury sold bonds at lower-than-expected yields. Italy's borrowing costs had surged early in the week, when former prime minister Silvio Berlusconi, who was replaced by Mr. Monti 13 months ago at the height of the Italian debt crisis, said he would seek a fourth term as premier. Mr. Berlusconi's vow to launch an anti-austerity campaign spooked the markets and triggered harsh criticism from European politicians and finance ministers.

Italy sold €3.5-billion of three-year bonds at 2.5 per cent, down from 2.64 per cent on a similar bond auctioned a month ago. It was the lowest yield paid since October, 2010. The Milan stock market rose sharply in the morning, but lost some ground in the afternoon, along with other European indexes.

Mr. Bersani's apparent endorsement of austerity will not please all Italians. Italy is in a deep recession; the economy is expected to contract by 2.3 per cent this year, the second-worst performance in the 17-country euro zone, after Greece. The downturn is partly the result of tax increases and spending cutbacks. Some voters were attracted to Mr. Berlusconi because he promised to scale back the austerity measures, which, he charged, were put in place at the behest of German Chancellor Angela Merkel.

But Mr. Berlusconi's centre-right PdL party is trailing badly in the polls, with a popularity rating of about half of Mr. Bersani's democrats. It is no longer even certain that Mr. Berlusconi will run. His on-again, off-again campaign may now be more off than on, given his latest U-turn. On Wednesday, he said he would drop his effort to become prime minister if Mr. Monti were to enter the race as the leader of a broad centrist alliance.

"If his position changes, I would have no problem with stepping back," Mr. Berlusconi said on Italian TV. "I have no personal ambitions."

Mr. Monti has not declared his hand, though he is under enormous pressure from Italian business groups and European politicians to seek elected office and keep his "Save Italy" reform efforts intact. On Saturday, shortly after Mr. Berlusconi's party withdrew its support for the technocrat government, Mr. Monti said he would resign immediately after the budget vote later this month.

Elections are expected in February, which gives Mr. Berlusconi plenty of time to change his mind again.

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About the Author
European Columnist

Eric Reguly is the European columnist for The Globe and Mail and is based in Rome. Since 2007, when he moved to Europe, he has primarily covered economic and financial stories, ranging from the euro zone crisis and the bank bailouts to the rise and fall of Russia's oligarchs and the merger of Fiat and Chrysler. More

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