• Berlusconi was convicted for fraud and is on trial for allegedly paying a teenager for sex (Photo: consilium.europa.eu)

Berlusconi will drive Italy into bailout, bank says

19.02.13 @ 09:28

  1. By Valentina Pop
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Berlin - Silvio Berlusconi's possible comeback after elections this week-end would drive up Italy's borrowing costs and offer the "perfect excuse" to apply for a bailout, according to a report by Mediobanca, Italy's largest investment bank.

"The outcome of the Italian general election scheduled for 24-25 February is becoming increasingly uncertain," the bank writes in its analysis.

It predicts that a coalition by Mario Monti's centrists and the leading Social-Democrats may not suffice to govern alone, as former prime minister Berlusconi is catching up in the polls.

"Paradoxically, the worst case scenario could actually become the best case, in our view. A last-minute Berlusconi victory would scare the market sufficiently to put pressure on the spread so to offer Italy the perfect excuse for what we keep seeing as the only viable way out given the non-sustainability of the country’s high public debt: applying for Draghi’s OMT programme," the bank says, in reference to the bond-buying scheme announced last year by European Central Bank chief Mario Draghi for countries that are under market pressure.

"This would naturally end up putting pressure on Germany ahead of its September elections, and add renewed pressure to the EU convergence project," Mediobanca predicts.

Italy narrowly avoided having to ask for a bailout in 2011 when Berlusconi stepped down and allowed his party to back the technocrat government led by Mario Monti.

But the media mogul and convicted tax fraudster has since changed course. He is now openly campaigning against Monti and the policies that restored Italy's credibility and lowered its borrowing costs.

"I have to give some good news, some excellent news: it seems we have caught up with them and have overtaken them," the 76-year old Berlusconi told his supporters at a rally in Milan on Monday (18 February), in what is now his sixth election race.

The last available polls, published two weeks before the general elections on 24-25 February put Berlusconi's camp at less than five percent behind the centre-left, narrowing a gap of 18 percentage points in December.

Monti's own centrist coalition came in fourth, less than half of the points Berlusconi's camp was credited with (13.4%). The political movement of comedian Beppe Grillo was also ahead of Monti in the polls, at 15.3%.

German politicians, while trying to keep as much distance as possible from the Italian elections, have voiced concern.

German foreign minister Guido Westerwelle told Sueddeutsche Zeitung on Tuesday Italy was "a key country in overcoming the European debt crisis" and that whatever party wins the elections, "we count on the pro-European course and the necessary reforms to continue."

Ruprecht Polenz, a member of Chancellor Angela Merkel's Christian Democratic Union and chairman of the foreign affairs committee in the German Parliament was blunter.

"Italy needs leadership that can be associated with the future. Berlusconi does certainly not represent that," he said.

He also told Sueddeutsche Zeuitung it was important to have "trust and credibility" and that Berlusconi's ongoing trials undermine this. The Italian politician is currently appealing a conviction for tax fraud and is on trial for allegedly paying a teenager for sex.