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Guess who’s back?

Berlusconi’s return casts shadow over Europe’s Nobel moment.

Berlusconi 12 10 2012Enlarge
Berlusconi's possible return threatens to deepen the euro crisis. (Giuseppe Cacace/AFP/Getty Images)

BRUSSELS, Belgium — Silvio Berlusconi casts a long shadow.

On Monday it stretched from Rome to Oslo, where concern that the media mogul could return as Italy's prime minister clouded the awarding of the Nobel Peace Prize to the European Union.

As EU leaders were collecting the prize, markets across Europe plunged back into turmoil on the news that Berlusconi had brought down the government of his successor Mario Monti, and was planning to run for the premiership in elections expected in February. On Tuesday, centrist politicians were reportedly urging Monti to make the run for prime minister.

Trading was suspended in some leading Italian bank shares as the Milan stock exchanged dropped 2.2 percent over the day. The yields Italy has to pay on its debts soared and the euro sank in response amid fears that the reforms Monti has introduced over the past year could be unpicked after the election.

"What Italy and Europe need is stability and Mr. Berlusconi is the opposite of stability," said the President of the European Parliament Martin Schulz, who was in Oslo for the prize ceremony. "So many of Italy's problems are the results of the 10 years in which Berlusconi was prime minister."

Italy is by far the largest of Europe's debt-ridden southern economies and European leaders fear political uncertainty in the months running up to the election will reignite market turmoil that will threaten the whole euro zone.

Spanish markets were already suffering Monday on the news from Italy.

"When there are doubts about the stability of a neighboring country like Italy, which is also perceived as vulnerable, we will immediately suffer contagion," Spanish Economy Minister Luis de Guindos said in a radio interview.

Berlusconi was forced to step down as prime minister in November 2011 as the euro zone debt crisis threatened to overwhelm Italy. He was replaced by Monti, an internationally respected economist. (Disclosure: The reporter’s wife is an adviser to Prime Minister Monti.)

Monti's government of unelected technocrats has done much to restore market confidence in Italy even as the economy has slipped deeper into recession and unemployment has grown.

Berlusconi's career appeared finished after he was convicted of fraud and sentenced to four years in prison in October. He also faces an ongoing trial for paying for sex with an underage prostitute.

Last week, however, the 76-year-old bounced back announcing he would again run for prime minister out of "sense of responsibility" after being "besieged" with requests to stand.

His right-wing party, People of Liberty, immediately fell in line behind its founder, ending a year-long deal with center and center-left parties to support Monti's government. Monti responded by saying he would step down after a new budget law is voted in, probably in the next couple of weeks.

Although People of Liberty is languishing in opinion polls behind the center-left Democratic Party, the prospect of a Berlusconi return sent a chill across Europe.

"Like a zombie from one of those Italian erotic-horror movies of the ‘70s, the unspeakable Silvio Berlusconi, has returned from the dead," said an editorial in the left-of-center French daily Liberation.

The paper's front page headline, over a picture of Berlusconi was "Return of the Mummy."

"Italy needs a comeback from Berlusconi like it needs a hole in the head," said Nicholas Spiro, of the risk consultancy Spiro Sovereign Strategy.

European leaders were more circumspect in their criticism, but they went out of their way to show support for Monti.

"Monti was a great prime minister of Italy and I hope that the policies he put in place will continue after the elections," said European Council President Herman Van Rompuy in Oslo.

"The direction that Italy has been going in for the last year and a half is a solid direction, there is no reason to worry," added France's Finance Minister Pierre Moscovici. "Berlusconi is returning to politics but I'm convinced that he will not return to power.”

"I can only say that the chancellor and Prime Minister Monti have always worked well together and she has praised his work repeatedly," said a spokesperson for German Chancellor Angela Merkel.

"She is expected to see him today at the Nobel ceremony in Oslo and will convey her extraordinary appreciation."

Berlusconi last week accused Monti of imposing German-imposed austerity in Italy. He wants to reverse some of the tax hikes and spending cuts which the current government has introduced to reduce Italy's debt, which at 126 percent of economic output is one of the world's highest.

For all the angst, Berlusconi may still never make it back to the prime minister's residence in Rome's 16th-Century Palazzo Chigi.

Opinion polls show the People of Liberty party has just 14 percent of voter intentions compared to 30 percent for the center-left Democratic Party, whose leader said he will stick by the Monti government's pledges to reduce the debt.

"We will respect the very stringent commitments taken … and we will take them on as our own," Democratic Party Secretary Pier Luigi Bersani said in an interview published Monday in the Wall Street Journal.

Meanwhile there is growing support from centrists for Monti to join the election campaign. So far he has declined to run, but says he would consider a second term if the election fails to produce a clear winner.

Berlusconi has shrugged off his opponents.

"When I enter a race, its not to do well. It's to win," he said Sunday.

Despite the polls and the scandals, Berlusconi's record of winning three general elections mean it would be unwise for his opponents in Italy and abroad to underestimate his chances. 

http://www.globalpost.com/dispatch/news/regions/europe/italy/121210/italy-berlusconi-monti-austerity-euro-crisis-elections