What just happened? It was billed as a momentous day for the Italian government, but Rome ended today in exactly the same situation as where it started. Given the recent turmoil, this is rather remarkable. The drama is reflected in a see-saw day of trading in Milan, as traders tried to make sense of what they were seeing.
To recap: Over the weekend Silvio Berlusconi ordered ministers from his center-right party to quit the coalition government run by Enrico Letta of the center-left and bring about a snap election. Letta responded by calling for a confidence motion in both houses of parliament today, which he would lose without the support of Berlusconi’s People of Freedom party in the senate. Leading up to the speeches and debate in the senate this morning, there were rumors of split in Berlusconi’s party, which meant Letta might survive the challenge. After a choppy start, Italian stocks began to rise as senators settled in for a showdown at the Palazzo Madama.
Amid much gesticulating and heckling in the chamber, Letta and other lawmakers made their cases. The dealmaking continued in the aisles, with leaks suggesting that the dissidents in Berlusconi’s party would be brought in line and vote against the government, which halted the rise in shares.
Shortly thereafter, the scarcely believable news that Berlusconi would abandon his challenge and vote for Letta began to trickle out. In a short, somber speech, Berlusconi said his party had decided to withdraw its challenge to government, although “not without some internal strife“. As the senators’ votes were called out one by one, the Italian benchmark stock index rose to an all-time high.
When it became clear that he had more than enough votes to continue as prime minister, Letta responded from the chamber in a very modern way, with a pithy tweet in reply to a journalist:
What to make of Berlusconi’s drastic change of heart? As analysts began publishing notes about what it means for Italy, stocks gradually gave away all of their gains. Italy will not face another rancorous election this year, but it remains governed by a coalition that includes the volatile Berlusconi, who clearly retains his flair for the dramatic.
Is Letta better off with a slimmer majority that includes rebels from Berlusconi’s party but not the party leader himself? A brief rally at the end of the day pushed stocks back up, although to a lower level than the midday highs. (Bonds followed a similar pattern throughout the day.)
A debate later this week will address whether Berlusconi should be expelled from parliament following his conviction for tax fraud. Even if the four-time former prime minister is ejected from parliament, it would be foolish to count him out. Berlusconi is a weakened political force, certainly, but there is little chance that the owner of huge swathes of the Italian media will simply fade into obscurity.