The markets are making it clear they think Italy will be better off financially if the country’s Prime Minister, Silvio Berlusconi, steps down. There’s a reason for that: his repeated failure to deliver on promises to reform the Italian economy.
Two reports broke this morning at 6:00am EST (noon in Italy) that Berlusconi’s demise was imminent. The markets took the reports seriously because they came from two journalists known close to the prime minister. The Italian market, which was down more than 2%, moved into positive territory by more than 2.5% percent—an intra-session move over more than 4%.
Italian yields, which were at Euro-era highs, fell back across the curve. Clearly, the market thinks Italy is better off without their billionaire leader.
Back in August, Berlusconi made a big show by forcing Parliament to work during what is normally the summer holiday to supposedly pass key reforms. That in response to pressure from Jean Claude Trichet, then head of the European Central Bank , and Mario Draghi, who was head of the Italian Central Bank. The two sent a letter to Berlusconi making clear he must pass reforms in order to receive help. The ECB kept its end of the bargain and began buying Italian debt on the secondary market to help bring down the country's interest rates. Berlusconi in the meantime, came up empty handed.