Markets have reacted badly following Mario Monti's announcement to step down as Italy's prime minister. With Silvio Berlusconi preparing a comeback, could Italy be the "detonator which blows the eurozone?"
It doesn't take much to spook the markets these days, so news that Italy's interim Prime Minister Mario Monti was set to resign after he lost the support of Berlusconi's People of Freedom party was bound to wobble them. And wobble they did.
On Monday morning, British and German markets opened down compared to their close on Friday. In the first two hours of trading on Monday, selling on Italy's stock market snowballed gradually. The stock index for the Italian market, or FTSE MIB, went down 3.3 percent, having shed 519 points.
This wobble apparently crossed over to other eurozone periphery countries like Spain, where the Spanish IBEX stock market was down 1.8 percent. London still trades the biggest portion of euros in Europe, and its stock index - FTSE 100 - had dropped 18 points, reflecting fears reverberating around the world at news that Italy was once again on the brink of political turmoil.
Italy is still in the grips of recession, and newly released production figures point to further drops. Industrial output fell by 1 percent in October, from the previous month alone. By early Monday morning, trading in three Italian banks - Monte Paschi di Siena, UBI and Banca Popolare di Milano - was halted because their shares had dropped by 5 percent, triggering an automatic temporary stop.
Unicredit and Intesa Sanpaolo, two of Italy's biggest banks, were also reported to be "profoundly in the red." Headlines in Italy's main financial newspaper, "Il Sole 24 Ore," were full of doom and gloom.
Italyon a warning
Yet Morya Longo, an analyst at Il Sole, posted a video analysis for the paper in which he said the biggest risks will come after the upcoming elections, sometime in February. He said that until then, what we're seeing now is just speculation. He added he thought there were "some signs of optimism."
In Longo's analysis, Monti's resignation is not a surprise - as there was always going to be an interim government. The stability agenda he has instigated is well on its way, and therefore needs only to be "approved [by any new government] to keep the markets calm."
Such calming talk was echoed by Germany's Foreign Minister Guido Westerwelle. Westerwelle issued a warning from Brussels, via an interview in Spiegel Online, when he said that Italy must not stop two-thirds of the way through its austerity package. Any stop, he predicted, would bring "not only Italy, but the rest of Europe turbulence."
Longo also pointed out that compared to 18 months ago, Italy's public debt was mostly in Italian hands, and therefore potentially less volatile. But a warning note came when he admitted that it was after likely elections in February that the markets would worry - because then, if the winning party failed to gain a strong majority, all the careful austerity of the last 11 months could go up in smoke. That, he said, would be the "real test of the markets."
The comeback king?
Few think Berlusconi can win again, but he is Italy's comeback king. His "relaunch" on Saturday at a football match echoed his first winning foray into national politics in 1994, when using the football chant "Forza Italia" ("Go Italy"), he won a short term as prime minister. He then came back twice more in the intervening decades, despite being often mired in scandal and impending court cases.
This time around, he declared to the waiting press that he was "in it to win it" - however, political analyst James Walston from the American University in Rome thinks winning this time is impossible.
Recent opinion polls say that Berlusconi might only muster 15 percent of votes. But Italy is not known for strong majorities, and even current poll leader Pierluigi Bersani's Democratic Party (PD) is only expected to garner double that of Berlusconi - still a far cry from a stable governing majority. As the voice of anti-Europe, Berlusconi might gain more votes than can be expected given the unpopularity of austerity; which is surely something that will worry other European leaders further.
Another thorn in the side of more established politicians is the comedian Beppe Grillo's "Movimento 5 Stelle" (5 Star Movement), which could garner as much as 20 percent of the vote in an spring election. Rudolf Lill, an expert on Italy and historian in Cologne, told DW that Grillo was "anti political" but added that if he does do well in the elections, he could make life difficult for the government.
'The detonator that could blow the eurozone'
Now more than ever, Italian society is in crisis. According to recent figures from ISTAT, the Italian national research center, almost three in 10 Italians are at risk of falling below the poverty line, while almost half of all Italian families survive on less than 2,000 euros per household per month. The situation has greatly worsened in the last two years.
Monti himself told La Repubblica newspaper that he was "very concerned" about Italy's future, and in an interview last Saturday with the same newspaper warned that Italy should "avoid becoming the detonator that could blow up the eurozone."
As if to acknowledge the importance and precariousness of Italy's situation at the moment, Bloomberg reported that Monti would hold talks with Angela Merkel later on Monday. The German government's press spokesperson told a press conference Monday morning that Merkel had always "worked well with Mr. Monti and found his work very satisfying."
Monti has been seen by Europe as a pair of safe hands, and he was someone who enjoyed the trust and support of both Merkel and Barroso. Although the German government spokesperson said that Merkel would not comment on his resignation or any potential future leaders of Italy, it is clear that they will be watching closely.
Streiter, the spokesperson, confirmed that it was "likely that Merkel and Monti would meet on the borders of their working lunch [in Oslo]," under the title "Europe's future" and that that topic would be carefully discussed by both of them. The pair, along with other European leaders, are in Oslo for the Nobel Peace Prize ceremony.
Fiddling while Rome burns?
But what's good for Europe is not necessarily what is liked in Italy. Monti's harsh austerity has alienated him from many Italians and politicians, and all contenders to his throne will be carefully considering how far they can push voters when trying to win their support for an upcoming election.
Stefano Ceccanti, a PD senator and constitutionalist, told the Italian daily "Corriere della Sera" (Evening Post) that for the PD to ally with Monti could be beneficial. If Monti were leading the center with the PD, "Bersani could become prime minister, and Monti would take the presidency." Ex-PD leader Walter Veltroni also thinks that making a grand alliance between the PD and Monti in the center would be attractive to Europe.
But in the end, it is up to the Italian people to decide.
Walston cautioned, however, that even if Berlusconi doesn't win, "he does have enough appeal and resources to make the life of whoever wins the elections very difficult, and he will try to drive wedges through whatever centrist-centre-left coalition Bersani is able to come up with," as he did under Monti's tenure.
Both market insiders and people will be watching closely to see who is making the most convincing moves over the next few months to keep those markets stable.
The EU's Catherine Ashton has said Ukraine still plans to sign an association agreement. The European Parliament has advocated sending a special delegation to the troubled country to broker talks.
If Germany's future federal government is made up of the country's two largest political groups, it won't receive much support from younger party members. They oppose the grand coalition alliance for several reasons.
Journalism and propaganda go hand in hand as Russia's media spotlights the ongoing protests and demonstrations in Ukraine. Germans living in Moscow criticize the coverage.
Call it Central European soul food. As the mercury falls, Berliners seek out restaurants serving traditional food to pack on a few pounds for the winter. Old-school cuisine has the stuff to become a big new trend.