The 86-year-old Italian president, Giorgio Napolitano, is standing firm as the head of state. This old man is one of the few people Italians can still turn to in their bid to find a way out of the spiraling crisis.
“Swift action is needed in order to restore trust in the credibility of the financial markets,” Napolitano said in Rome this week.
The president has managed to appeal to the conscience of the outgoing Prime Minister Silvio Berlusconi and to lay down a tight timeframe for reform, so that by the time markets open on Monday morning, Italy should have a clear path out of the debt crisis.
On Friday and Saturday the two houses of parliament will adopt a comprehensive reform package, designed to restructure Italian state finances and improve its ability to compete. For months, the conservative Berlusconi put off making such decisions, until it went too far even for fellow European Union leaders. Berlusconi was forced to sign up to putting the measures in place. Within a short time the laws should pass through both the senate and the lower house of parliament. Whether or not they will find a majority remains unclear.
Task falls to the transitional government
Bildunterschrift: Großansicht des Bildes mit der Bildunterschrift: Giorgio Napolitano has tried to calm shattered nervesOnce the laws have been passed, according to Napolitano, the failed Berlusconi could step down as early as this weekend. Directly after that, Napolitano wants to appoint the former EU Commissioner Mario Monti to form a transitional government made up of so-called technocrats.
It will be Monti’s task to prevent Italy from falling into a situation where it is unable to pay its debts, and to secure funding via the capital markets within the next few months. Berlusconi’s party appears to be ready to drop its demands for new elections, at least for the moment. The socialist opposition party is also not seeking new elections, due to a lack of suitable candidates.
In reality, Italy has little time for elections. The entire strength of its politicians must now go toward winning back the trust of the financial markets, according to a warning from the president of the industrial association Confindustria, Emma Marcegaglia. “We do not deserve to end up like Greece,” she said.
Italy clinging to the European Central Bank
It seems Italy’s politicians began to see reason as a result of the huge pressure building up in the financial markets. Interest rates, which Italy has to pay for its government bonds, breached the 7 percent barrier on Wednesday.
For Portugal and Ireland that marked the threshold where they had to seek financial assistance from the rest of the eurozone and from the International Monetary Fund. Italy’s finance minister has to refinance some 37 billion euros of debt. In the coming year some 304 billion euros ($413 billion) in old government bonds are due for repayment. With interest rates at 7 percent, that would be frankly unaffordable.
For the banks that have bought Italian government bonds, the situation could also be precarious. Investors, who no longer trust Italian government debt,