Italian borrowing rates soar (AP)
MILAN ? Premier Silvio Berlusconi's government teetered Thursday after its failure to come up with immediate growth measures to present to G-20 leaders in Cannes exposed growing fissures in the governing coalition and sent Italian borrowing rates again to dangerously-high levels.
Berlusconi met with his Cabinet late into the evening in an attempt to agree on a decree that would give immediate effect to emergency measures. Instead, Berlusconi goes to Cannes with proposed legislation, requiring approval by a divided Parliament , that would, among other things, sell off government property and privatize a limited category of local public services.
The yield on Italy's 10-year bonds jumped to 6.4 percent on the secondary market at one point, 4.62 percentage points higher than the rate on the German equivalent bund. Speculation that the European Central Bank was back in the markets buying up Italian bonds took the yield back down to 6.30 percent.
The ECB has been buying up Italian bonds for weeks in an attempt to keep borrowing rates at manageable levels. Borrowing costs of 7 percent are widely considered unsustainable, which could cause a default on public debt. With a debt of euro1.9 trillion ($2.6 trillion), or 120 percent of GDP, Italy is considered too big to bail out.
Berlusconi is under growing pressure to step down, although the Italian leader has insisted that his government will survive its mandate until 2013. Even his coalition partners, the Northern League, doubt that.
"It is difficult to avoid the impression that this government's time is numbered in days, or weeks, and that the legislature will finish at the beginning of 2012," Corriere della Sera, a moderate daily, wrote in a front page editorial.
After raising expectations of a decree, the government announced legislation reportedly after President Giorgio Napoletano suggested they would enjoy more legitimacy if passed by the full Parliament. They include amendments that include divesting government-owned real estate, privatizing local public companies, measures to encourage investment in infrastructure and liberalizing the labor market.
The measures must be approved by the end of the year, the government said in a statement.
Berlusconi outlined such measures in a letter to the EU last week after coming under European and market pressure to come up with solid proposals to boost anemic growth. Doubts were growing that Berlusconi had the political muscle to push reforms through.
President Giorgio Napoletano has been meeting with leaders of Italian parties to take the political temperature. In the event Berlusconi's government falls, it would be up to Napoletano to decide if a technical government or another of the center-right would run the country before new elections could be organized.
The government has been further weakened by reports of discord on emergency measures between Berlusconi and his finance minister Giulio Tremonti. Lawmakers in Berlusconi's party have increasingly voiced discontent.
"Berlusconi has become a puppet in the Italian political theater," the speaker of the lower house and former Berlusconi ally, Gianfranco Fini, told state TV.
He urged Berlusconi to show his leadership by seeking a broad alliance to see the country through the crisis. But if Berlusconi continues the present course "Italians will judge him," Fini said.
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