The Italian Political Drama Series

Mamma Mia! Italy’s Bad Boy, Silvio Berlusconi, is still causing a ruckus in the European markets these days. The 77-year old billionaire playboy politician (Nope, not talking about Tony Stark here!) has recently been convicted of tax fraud so Italian lawmakers will be voting on whether he gets to keep his Senate seat or not.

If he ends up getting voted off – which he most likely will – the current coalition government could break down. Over the weekend, Berlusconi stirred more chaos by withdrawing his support from Prime Minister Enrico Letta’s leadership and asking five ministers from his PDL (People of Freedom Party) to resign.

However, it appears that a couple of Berlusconi’s fellow party members are seeing through his desperate attempt to bring down Letta’s government. Angelino Alfano and Maurizio Lupi, two of the Ministers who handed in their resignations last weekend, have publicly thrown their support at Letta. Alfano was Interior Minister and is long considered as Berlusconi’s protégé while Lupi was Transport Minister.

Talk about a plot twist, huh?! This new development presents a crossroad in Italian politics, which has supported Berlusconi as the undisputed center-right leader for two decades. This Italian political drama is starting to get more entertaining than The Sopranos!

Letta is likely to call for a confidence vote on the coalition government within the week. To win the vote, Letta must be able to garner enough support (at least 161 votes) from the PDL or the anti-establishment Five Star Movement.

If this vote fails, Letta must resign and the current government will fall. This could pave the way for more uncertainty in the country, which is already being plagued by a decade of economic stagflation as well as the worst debt-to-GDP ratio since Mussolini was declared a fascist dictator in 1925.

What’s bothering more investors is that even if Letta’s government survives the vote, Letta might not have enough support to pass the steep but necessary tax and budget reforms needed to meet the requirements to access financial help.

Even worse, concerns in Italy could spill over to the other peripheral euro zone nations and inspire another confidence crisis in the region. This could mean higher bond yields, even more expensive debt for the financially troubled euro zone countries, and a longer road to recovery.