He's Baaack: Berlusconi Hints At Political Return, Italian Market Plunges

Il Cavaliere is back, and the Italian stock market isn’t taking the news in stride.

After meeting with members of his center-right il Popolo della Libertà [People of Freedom] Party on Wednesday, former Prime Minister Silvio Berlusconi made statements hinting strongly at a return to politics after a yearlong hiatus.

“The situation today is much worse than it was a year ago when I left the government out of a sense of responsibility and a love for my country,” he said, according to Reuters, belying Italy’s slow progress toward financial stability over the past several months.

“I cannot let my country fall into a recessive spiral without end. It's not possible to go on like this,” Berlusconi continued, adding that he has been “besieged by requests… to announce at the soonest my re-entry into politics to guide the PDL.”

It is true that things have only been worsening for the average Italian citizen. The recession is still in full force, and unemployment rose to a 13-year high of 11.1 percent last month. But volatility in the market has calmed considerably over the past several months. The spread between Italian and German bonds has narrowed, a sure sign of investor confidence.

But that spread increased precipitously on Thursday, rising six points to hit 317, as bond yields spiked.

The stock market was reacting not only to Berlusconi’s Wednesday announcement, but also to the PDL’s abrupt withdrawal of support for the technocratic Prime Minister Mario Monti.

Party members walked out on two confidence votes on Thursday. The measures -- one to encourage growth and the other to slash regional spending -- passed anyway, but it was made abundantly clear that PDL is both willing and able to shake things up, even to the point of risking a governmental collapse.

In November 2011, as the Italian economy tanked and sex scandals swirled around him, Berlusconi stepped aside as prime minister so that white-haired, bespectacled Monti could try his hand at stabilizing the government. As prime minister, Monti has implemented austerity measures that have soothed investors and some EU officials, but angered much of the Italian citizenry.

During his hiatus, Berlusconi vowed not to contest for high office again – but that was then. Even though a Nov. 30 SWG poll showed PDL with only 14.3 percent of popular support, trailing far behind the leading center-left Democratic Party’s 30 percent, Berlusconi could still make waves with an appeal to populist sentiments, plus a few strategic parliamentary alliances.

General elections are scheduled for April of next year, though PDL could conceivably wreak enough political havoc before then to trigger a snap vote.

Berlusconi’s detractors are aghast that he is still grabbing the spotlight after years of bad behavior. During his four terms as prime minister between 1994 and 2011, the flamboyant media mogul has hosted “bunga bunga” sex parties involving underage prostitutes, presided over years of lackluster GDP growth and mounting debt, formed questionable alliances with xenophobic political parties and weaseled out of numerous charges – and convictions – of fraud and corruption.