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Forget Berlusconi: Germany may be Italy's biggest concern

Eva Montecchi Photography | Flickr | Getty Images

Fast-approaching German elections are a bigger risk to Italy's stability than Silvio Berlusconi's potential expulsion from the country's political landscape, an Italian CEO told CNBC.

"What is going on at a political level in Italy is not really distracting... Italy has always got to the brink of destruction and has pulled itself back," Arrigo Berni, chief executive of notebook maker Moleskine, told CNBC this week.

"I'm concerned much more with what's going on in our economy worldwide, honestly, and the fact that we have the German elections in a few weeks. For the country as a whole and for Italian citizens, decisions that are going to be made after the German elections in Frankfurt or Brussels are going to be much more important," he added.

(Read more: German elections are a 'close call': Merkel)

Chancellor Angela Merkel is expected to win a third term of office in the September 22, with the latest Forsa poll giving her Christian Democrat coalition a 14 percent lead over Peer Steinbrueck's Social Democrats. She has been seen as pivotal in pushing for economic reforms in Italy -- although a number have proved so unpopular that they have been reversed or rejected this year by the coalition government, causing consternation among investors.

(Read more: Italy's central bank sees even steeper decline for economy)

"Markets might worry that the probability of seeing a sustained reform drive to boost dim growth prospects is likely to stay rather low – at least as long as the political situation remains so uncertain," Daniele Antonucci, senior economist at Morgan Stanley, said on Wednesday.

Italy faces significant political upheaval if former prime minister Silvio Berlusconi, who was convicted for tax fraud in August, is expelled from the country's upper house of parliament.

On Tuesday, an Italian Senate committee delayed a vote on the issue, which has the potential to impact not only Italian politics, but also the country's much-needed economic reforms.

(Read more: Berlusconi won't give in: What it means for Italy)

Berlusconi's political allies have threatened to bring down the fragile coalition government -- made up of Berlusconi's People of Liberty party and Prime Minister Enrico Letta's Democratic Party -- if the Senate does expel the politician, but Italy's political credibility and ability to enact reforms could be undermined if he stays.

(Read more: Berlusconi 'remarkably responsible': Mario Monti)

Market analysts said the ongoing "political soap opera" was to blame for a rise in Italy's borrowing costs and latest economic data.

"Italian bond yields in response have edged above 4.5 percent on these political concerns and above Spanish borrowing costs for the first time in 18 months," Michael Hewson, senior analyst at CMC Markets told CNBC on Wednesday. "[Tuesday's] worse than expected second GDP (gross domestic product) revision serves only to highlight the urgency in resolving this uncertainty, despite some recent evidence of a recovery in the third quarter."

Renewed political tensions could also hit domestic demand, Barclays' economist Fabio Fois said, further dampening Italy's growth outlook. "In particular, early signs of bottoming in the investment cycle (still under pressure as poor credit conditions for the private sector persist) may be suffocated by political instability, which could delay investment decisions," he warned.

-By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld

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