(AP) Concerns over the stability of the Italian government grew on Thursday after Silvio Berlusconi's party withdrew its support, threatening to bring a premature end to Premier Mario Monti's ambitious reforms program.
Berlusconi's center-right PDL party abstained from a confidence vote in the Senate on Thursday. Though Monti's government of unelected technocrats won the vote by 127 to 17, investors fear the move heralds a period of political uncertainty in the run-up to planned elections next year.
Many credit Monti with bringing back some investor confidence in the country, pulling it back from the edge of financial disaster it was teetering on last year.
There is the whiff of crisis, political scientist Roberto D'Alimonte of Rome's LUISS University said on Sky TV 24. We will see in the next hours.
Another confidence vote is due later Thursday in the Italian parliament's lower house. Monti's government has survived several such votes in the year since it took office. But the political situation has grown tense in recent weeks as campaigns intensify to elect a new government early next year, when Monti's mandate expires.
PDL lawmaker Fabrizio Cicchitto said the party was expressing its dissent on the government's economic policies: We have decided to give our assessment and to give a negative appraisal.
As financial markets dropped on the news, President Giorgio Naptolitano, who brought in Monti last year after Berlusconi failed to persuade markets he could protect Italy from falling prey to the debt crisis, urged calm.
It is necessary to cooperate responsibly on an orderly, not precipitous and not convulsive, conclusion of the legislature, Napolitano said in a statement.
While the center-left Democratic Party, or PD, has been invigorated by recent primaries, Berlusconi's party is in disarray. The 76-year-old three-time premier has hinted that he will run again, despite earlier bowing out to give room to a younger candidate.
Recent polls show the PD with a minimum of 30 percent and Berlusconi's PDL party trailing with less than 15.
Certainly, today's PDL decision to withdraw its support for Monti is significant and tends to confirm that the next few months will be bumpy for the Monti government, said Unicredit analysts Chiara Corsa and Loredana Federico.
After a period of seeming calm over Italy, investors have returned their focus to the country. Though the government is expected to win the second confidence vote, the developments highlight the fragile nature of the consensus in Italy over Monti's economic reform program, which includes liberalizing the labor market and increasing the pension age.
The Milan stock exchange fell Thursday, with the benchmark FTSE MIB trading 0.7 percent lower, in contrast to most of Europe's main indexes, which were trading higher.
The worries were evident in the bond markets too, where the yield on the country's 10-year bonds rose by 0.12 percentage points to 4.52 percent.
The Italian economy, the third-largest of the 17 European Union countries that use the euro, is in recession as the government enacts tough measures to get a handle on its debts. Italy has the second-highest debt level as a percentage of its GDP in the eurozone at 126 percent. Only Greece's debt is higher with 150 percent.
The popularity of Monti's government, over a year into power, has been somewhat weakened with the recession and political parties are positioning themselves for elections next year. The Prime Minister has said he would be available for a second term, but has excluded running for office. He could, however, be tapped if no party wins a clear majority.
Berlusconi claims allies are pressing him to seek election again, hoping that Monti's painful austerity measures will win votes for the center-right.
Economic Development Minister Corrado Passera angered Berlusconi supporters -- ostensibly the reason for Berlusconi's party to withhold support on the confidence votes -- by saying that it would not be good for Italy's image abroad to go back.
We need to give the sensation that the country is moving ahead, Passera said on RAI state-run television.
Besides showing poorly in the polls, Berlusconi also is appealing an October tax fraud conviction and awaiting a verdict in the coming weeks in his trial on charges of having sex with an underage woman and using his office to cover it up. He says he is innocent.
Leading the polls at present is the center-left Democratic Party, led by party secretary Pier Luigi Bersani who won his party's nomination in a two-weekend primary that reinvigorated the left.
While some smaller centrist parties have signaled that they would welcome another Monti term, Bersani has been particularly adamant that it is time for elected politicians to take over.
He called the center-right's tactics irresponsible and reaffirmed his party's loyalty and support of the Monti government during the present legislature.
Barry reported from Milan