The potential resignation of Italian Prime Minister Silvio Berlusconi is no panacea for the deep-rooted economic troubles within Italy and the rest of Europe. While the markets responded somewhat positively to reports that Italy's longest ruling leader since Mussolini is on his way out the door, there were still too few private investors willing to snap up Italian debt, sending Italian bond yields to their highest level since the founding of the euro.
The political mess in Italy, like the one currently in Greece, is not a surprise for traders familiar with the southern European markets. Italy's fate is being decided not just in Rome, but also in Brussels, where euro zone technocrats are trying to concoct an elixir for the region's sovereign debt crisis. Unfortunately, the political dysfunction that has gripped Rome has also paralyzed the EU. Both need to get serious about solving their respective political problems before the market writes both of them off for good.
Berlusconi failed to receive a total majority today in a normal budgetary vote, which had become a de facto vote of no confidence on his leadership of the Italian state. The main opposition party abstained from voting in an attempt to reveal the cracks in Berlusconi's disparate political coalition. The vote ended up eight shy of the 316 needed to show that he had a majority in the Italian parliament. While the budget bill passed, as there were no votes against the measure, the failure to receive a total majority has put Berlusconi's political future in doubt.
Italian theatrics aside, the vote today and its outcome are really just one of the many sideshows in the long-running European sovereign debt crisis. While an ensuing power vacuum and a technocrat-run interim government certainly isn't the best choice for Italy at such a critical juncture in the nation's economic history, it probably won't spell disaster either.
