Mario Monti's resignation puts Italy and its dysfunctional political system back under market watch. But that may not be a bad thing.
The position of the Italian prime minister was looking more fragile by the day. His premature resignation surprises nonetheless. Silvio Berlusconi, whose conservative Popolo della Liberta (PdL) party had supported his successor's technocratic government since it was formed a year ago, recently began attacking it ahead of next year's general election. Berlusconi's announcement that he would run for the prime minister's job, coupled with comments by his deputy were the final straw. Over the weekend Mr. Monti decided to resign once a budget law is passed.
Mr. Monti's exit is no great coup for Mr. Berlusconi. One consequence is that the election may be brought forward by a month or two to February next year. That plays into the hands of the centre-left Partito Democratico (PD), which leads the polls. An accelerated election may also make it harder to change the electoral law, which means that PD will benefit from the majority premium in Parliament. Mr. Berlusconi's antics, meanwhile, could damage or split his party.
The technocratic era was drawing to a close anyway. However, Mr. Monti's resignation is fanning speculation that he will now campaign himself, as head of a possible coalition of centrist parties. The snag is that would-be coalition is unlikely to win a majority, barring radical developments – say if an exodus of politicians from the PdL bolstered its ranks.
The chaotic end of the technocratic regime highlights the fluid nature of Italian politics. Mr. Berlusconi may be weakened, but he retains the capacity to be a nuisance and could be a thorn in the side of the next government.
Italian bond yields have fallen over 2 percentage points from around 7 per cent when Mr. Monti came to power in November 2011. They won't rise back to their crisis-level again: the economic situation is not as dire as a year ago, and a government collapse just before the election is less significant than, say, six months ago. Moreover, the European Central Bank's commitment to buy bonds has dulled markets' wits. Still, investors won't like the sight of Mr. Monti being hounded out of office and their worries will translate into rising yields. That should remind Italians of the need for a stable, responsible government and sound economic policies.