Economic and political drama unfold in Italy
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After Italian Prime Minister Silvio Berlusconi announced his intention to resign amidst the country’s evolving financial crisis, markets failed to stabilize signaling skepticism that new leadership isn’t a solution to the problem. The talk turned to whether a bailout similar to that received by Greece, Ireland, and Portugal would be necessary. The New York Times, however, explains that this case would be more complicated. The size of Italy’s economy makes it possible that the European Union and the International Monetary Fund would not have the resources to support a bailout of that size.
While The Times says the worst case scenario is that Italy is forced to give up the euro, it tempers pessimism by pointing out that Italy is a “far stronger and wealthier economy” than smaller countries that required bailouts and carries a relatively small budget deficit. A spokesman for the International Monetary Fund placed the ball directly in Italy’s court. “It’s really up to Italy to act.” Another echoed, “It’s not a time for bailouts, it’s a time for them to implement policies.”
In an effort to control its spiral, Dow Jones reports that the Italian government plans to raise the retirement age to 67 by 2026. The move is an effort to control pension costs rising sharply as the population ages. In an effort to raise new revenue, the government also unveiled a plan to sell public real estate.
Meanwhile, Berlusconi’s successor remains unclear. While he has a favorite, Berlusconi’s dicey past may be a problem to those who are closely associated with the outgoing PM. The Wall Street Journal breaks it down:
For months, Mr. Berlusconi has been grooming Angelino Alfano, secretary of his People of Freedom party and a former justice minister, to succeed him as party leader and, eventually, prime minister. Mr. Berlusconi had at first planned to hand the reins to Mr. Alfano before his own term expired in 2013.
But Mr. Alfano’s path to power is far from clear. Mr. Berlusconi has over his 18 years in politics nurtured a cult-like following among his voters, a strategy that analysts say could undercut his ability to hand the baton to a newcomer. Mr. Alfano’s ties to Mr. Berlusconi may also become too much of a liability.
As Italy’s power struggle continues, Greece has a new prime minister. Lucas Papademos, Vice President of the European Central Bank, will lead a new coalition government after George Papandreou stepped down earlier this week. Papademos immediately made it clear that Greece remains committed to the controlling its fiscal crisis and intends to remain a part of the euro zone. “The Greek economy continues to face huge problems despite the great efforts than have been made for fiscal reform. The participation of our country in the eurozone is a guarantee for the country’s monetary stability. It is a driver of financial prosperity. And our country’s participation the eurozone, despite the difficulties that arise, will facilitate the adjustment of the economy and its development.”
Stay tuned to Bankrupting America for the latest as events in Greece and Italy unfold.