ECB steps up pressure on Berlusconi

The ECB could stop buying Italian government bonds if it concludes Italy is not adopting promised reforms, says ECB Governing Council Member Yves Mersch.

“If the ECB board reaches the conclusion that the conditions that led it to take a decision no longer exist,” Mersch said, “it is free to change that decision at any moment. We discuss this all the time.” The majority of the bonds bought by the ECB so far are thought to be Italian BTPs.

The comments indicate a lack of confidence in the ability of Italy’s prime minister Silvio Berlusconi to implement the series of reforms he promised to EU leaders last week.

At the G20 meeting in Cannes, Christine Lagarde, managing director of the IMF, said: “The problem that is at stake, and that was clearly identified both by the Italian authorities and by its partners, is a lack of credibility of the measures that were announced.” Berlusconi was forced to accept quarterly visits from IMF supervision teams with immediate effect, widely interpreted as a humiliation for the country.

The ECB threat could be an empty one, however, as Berlusconi has limited ability to influence parliamentary opponents. He has lost much of the control he had over his own coalition partners, and has suffered a number of defections. Such a threat, if carried out, would aggravate Italy’s funding problems, and undermine efforts to prevent contagion from the Greek crisis.

Speculation in the Italian press suggests that Berlusconi stands little chance of surviving as prime minister for much longer. He has already promised to stand down next year, though it is not clear if this is a tactical move ahead of a key vote due to be held in the Chamber of Deputies on Tuesday. The outlook remains unclear, as even if the embattled prime minister is finally removed, there is no consensus in parliament on the way out of the crisis.

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