From Berlusconi to Draghi

ROME – Greece may be the fuse, but is Italy the bomb that will blow up the euro and perhaps the entire European Union? In the weeks since Standard & Poor’s and Moody’s downgraded Italian sovereign debt, and gave it a “negative” outlook, the country has been targeted repeatedly by financial speculators. But the country’s economic and financial fundamentals aren’t so bad; it is the country’s political disarray that is spooking investors and roiling markets.

Prime Minister Silvio Berlusconi’s government has lost the confidence of international investors. Even at home, as every opinion poll shows, the once huge Berlusconi majority has become a minority. For much of the crisis, Berlusconi retained his grip on parliament, but daily it became ever more tenuous, with the balance shifting to other members of his coalition and to the opposition. Despite Berlusconi’s best negotiating efforts (worthy of his iconic role as President of the AC Milan football club), many MPs simply don’t want to be framed as accomplices to the Italian – and therefore European – failure. They insisted that he resign as the price of backing reform efforts to quiet the financial markets.

International pressure on Berlusconi will not run out of steam, nor will protests from union workers, students, and indignados. Given this volatile mix, a political crisis has become unavoidable. Thus, Italian President Giorgio Napolitano, who enjoys great respect at home and abroad, is bound to play a pivotal role. Still, it is impossible to predict whether Italy faces an interim government until the end of the current electoral term in 2013 or snap elections in early 2012. One thing is certain: the country’s political parties are gearing up for an electoral campaign.

On the center right, Berlusconi is now unlikely to stand for re-election. The Northern League is deeply split: its historical leader, Umberto Bossi, seems tired and ill, but determined to maintain his alliance with the prime minister. But his party colleague, Interior Minister Roberto Maroni, wants a higher profile, and probably would not rule out other political combinations than the link with Berlusconi. That might well prove necessary, given the extremely low likelihood that Berlusconi’s coalition can win another parliamentary majority.