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Berlusconi Confidence Vote Possible Wednesday: Senator with Reuters

A budget vote in Italy's lower house later Tuesday is unlikely to pass decisively, which could in turn lead to a confidence vote for Prime Minister Silvio Berlusconi as soon as Wednesday, an Italian opposition senator told CNBC Tuesday.

Piazza Venezia, Rome, Italy
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"The prime minister will probably ask for a confidence vote in the lower house and then we will probably know what will happen. He will not resign unless he loses the confidence vote,” Senator Ignazio Marino told CNBC Tuesday.

"Technically he just needs to meet with the other ministers and ask for a confidence vote to the parliament, and they could meet tomorrow afternoon," Marino said.

Senator Marino of the Italian Opposition Democratic Party said there were plenty of politicians who are credible alternatives to Berlusconi and who could put through the necessary reforms.

"There are a lot of people in Italy with experience in economics that can naturally carry through this very tough period not only in Italy but also Europe. There are people in this country who are not concentrating only on themselves as appears to be the problem for the Prime Minister at the present time," he added.

The opposition isn’t alone in opposing Berlusconi. The prime closest ally, Northern League leader Umberto Bossi, on Tuesday called on the Italian prime minister to bow to intense market and politcial pressure to resign.

Berlusconi has denied reports that he is set to resign before Tuesday’s vote takes place. Italy is the euro zone’s third largest economy and the possibility that it might find itself in a similar position to Greece has rattled the markets.

Senator Marino said he felt it was likely that a temporary government would be formed in the interim as elections are already scheduled for 2013, but that early elections would be preferable.

"There will probably be an attempt to make a technical government to go through and make the economic reforms that the country needs. This parliament did not make any reforms,” he said.

Reuters news agency reported that Italian government bond yields approached
unsustainable levels on Tuesday. Shifts in the Italian yield curve and a widening gap between the prices bondholders demand for Italian debt and what potential buyers are prepared to pay are flashing warning signs similar to those seen in Portugal, Greece and Ireland before high borrowing costs froze them out of debt markets.  

The Italian 2/10-year bond yield curve was at its flattest since the 2008
financial crisis around 55 basis points, while five-year yields were higher than
those on 10-year bonds,  reflecting investor fears they may not get their money

In a normally functioning market, investors demand a higher risk premium for
longer dated bonds than for shorter maturities. And in a sign of dwindling liquidity, the bid/ask spread for the September 2021 BTP was at its widest since early August around 60 basis points, a level seen before the European Central Bank began buying Italian and Spanish debt in August in an effort to keep borrowing costs down.

A report from Mediobanca Securities published in September showed that the banks with the largest exposure to Italian debt were Italy's Intesa San Paolo with 57.6 billion euros ($79.2 billion) of Italian government bonds, Unicredit at 47.4 billion euros.

Monte Dei Paschi di Siena – MPS – had exposure of 32 billion euros and France's largest bank BNP Paribas had 24 billion euros of exposure.