Italy Led by Letta Brings Berlusconi Back as Winner

An opportunity for Berlusconi to regroup, catch his breath and prepare for the next round of elections

By Andrew Frye & Alessandra Migliaccio
Silvio Berlusconi, the three-time prime minister and two-time convicted lawbreaker, won a path back to power in Italy by outmaneuvering rivals during an eight- week political stalemate.

A year and a half after resigning in near-disgrace, the 76- year-old billionaire became the key figure in talks that began today to form the next Cabinet after the Democratic Party’s Enrico Letta was appointed prime minister. Berlusconi and his 241 lawmakers, the second-biggest contingent, hold the votes Letta, 46, needs to secure a parliamentary majority.

Berlusconi is one of the last of his generation standing after outgoing Premier Mario Monti, 70, was rejected by voters in February and 61-year-old Pier Luigi Bersani was discarded in a Democratic Party mutiny. Berlusconi’s resilience, even as he battles criminal charges from tax fraud to sexual misconduct, has gained him the admiration of allies and adversaries alike.

“Silvio Berlusconi is the real winner,” Nichi Vendola, an opponent and head of the Left, Ecology and Freedom party, said April 20 after the owner of broadcaster Mediaset SpA (MS)laid the groundwork to be part of the governing alliance. Vendola, a Bersani ally, said today he won’t support Letta.

Inconclusive Feb. 24-25 elections split parliament in three blocs and left the Democratic Party, the top vote getter, with no clear path to a majority. The party, known as the PD, initially refused to consider a deal with Berlusconi while Bersani fruitlessly pursued Beppe Grillo’s Five Star Movement, the third-biggest force.

Bond Rally

That strategy failed, and Bersani conceded defeat April 19. The next day, Berlusconi and the PD eased the deadlock by joining to re-appoint President Giorgio Napolitano, 87, to a seven-year term. Letta’s mandate, given by the president after consultations with party leaders except Grillo, who has renounced traditional politics, signalled a broader accord.

Investors took the gridlock in stride, sending Italian borrowing costs down since the election. Ten-year bond yields reached a 28-month low this week, rallying on Napolitano’s return. The yield rose for a second day today, adding 11 basis points, to 4.12 percent at 11:15 a.m. in Rome, on speculation the rally was overdone.

“I am appealing to all political forces and their sense of responsibility,” said Letta yesterday at the presidential palace in Rome. “All of the essential reforms must be done together with the largest possible participation.”

Party Negotiations

Letta started consultations with parties today to seek common ground on a government program and divide Cabinet positions. Berlusconi traveled to Dallas to attend the dedication of former President George W. Bush’s library, buying him time. Letta will probably report back to Napolitano to formally accept the mandate on April 28, with confidence votes in Parliament due the following day, Ansa reported yesterday, citing unidentified people close to the designated premier.

Italian voters haven’t abandoned Berlusconi, who rejects accusations and findings of guilt as the result of political vendettas. More than a quarter of voters looked to him in the election as the person to lead the country out of recession. His popularity, opinion polls show, has only grown since then.

That rising support is giving Berlusconi leverage on minister choices and government program. His People of Liberty party, or PDL, is pushing for the abolition and refund of a property tax, known as the IMU, on first homes. The PDL is also resisting the possible appointment of Interior Minister Anna Maria Cancellieri and will seek to control the Economic Development ministry, which regulates the media, La Repubblica reported today, citing no one. A failure to strike a deal could prompt Napolitano to call snap elections.

‘Next Round’

“The Letta government is an opportunity for Berlusconi to regroup, catch his breath and prepare for the next round of elections,” said Federico Niglia, international history professor at Rome’s Luiss University.

Berlusconi’s return to prominence comes almost 18 months after the European debt crisistoppled his last government, and six months after he received the first of two criminal convictions. Berlusconi is appealing the tax-fraud and wire- tapping verdicts, and he has denied the charges in a Milan trial in which he stands accused of paying for sex with a minor.

Letta’s push to engage Berlusconi would reunite what were the two biggest parties in Monti’s coalition, which split up in December. While Berlusconi has said he is willing to cooperate, he has also threatened to send Italy back to the polls if he doesn’t get what he wants in a partnership government.

“We don’t have to have significant things to satisfy markets,” said Fabrizio Fiorini, chief investment officer at Aletti Gestielle SGR SpA. “It’s enough to just not erase the things Monti did.”