Mediobanca Analyst: Berlusconi Win May Prompt ECB to Bail Out Italy

Monday, 18 Feb 2013 09:10 AM

 

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Victory by Silvio Berlusconi may be the best outcome from Italian elections this week as it “would scare the market,” prompting Europe’s fourth-biggest economy to get a bailout to lower borrowing costs, Mediobanca SpA said.

A Berlusconi win in Feb. 24-25 parliamentary elections would lead to higher Italian bond yields, Antonio Guglielmi, an analyst at Mediobanca in London, said in a report Monday. Higher borrowing costs would offer “the perfect excuse” to apply for a rescue led by the European Central Bank, which is “the best way out” of Italy’s unsustainable debt levels, he wrote.

Italy sidestepped asking for an ECB-led bailout last year as Prime Minister Mario Monti’s tax increases helped reduce borrowing costs, shielding the nation from the worst of the sovereign debt crisis. Berlusconi, a three-time premier, has vowed to reverse Monti’s austerity policies if re-elected.

“Paradoxically, the worst-case scenario could become the best case to us,” Guglielmi said of a possible Berlusconi win and subsequent bailout request. Mediobanca is Italy’s largest publicly-traded investment bank.

Italian borrowing costs, which reached euro-era records in November 2011, have declined sharply since ECB President Mario Draghi pledged in July to do “whatever it takes” to save the euro. Italy’s 10-year bond yield was 4.416 percent at 2:37 p.m. in Rome, compared with a record 7.261 percent on Nov. 25, 2011.

Anti-Austerity Crusader

Berlusconi is seeking a comeback 15 months after his inability to contain the debt crisis forced him to resign as premier. His parliamentary forces supported Monti’s budget rigor for 13 months before Berlusconi began the election campaign by reinventing himself as an anti-austerity crusader.

“The austerity recipe applied to all of Europe produced a general crisis,” Berlusconi said today at an event in Monza organized by business lobby Confindustria and televised by Sky.

Berlusconi has promised to repeal the property tax on primary residences and lower corporate levies if his coalition wins the election. The 76-year-old billionaire, who is appealing an October tax fraud conviction, has also vowed to refund more than $5 billion of 2012 property tax payments if he is returned to power.

Berlusconi was running second in opinion surveys 10 days ago before a two-week polling black out began. His coalition had 27.8 percent in a Feb. 8 SWG Institute poll, compared with 33.8 percent for the forces of Pier Luigi Bersani. Monti had 13.4 percent support and comic Beppe Grillo had 18.8 percent, according to SWG.

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