As bond markets target Italy, where is Berlusconi?

ROME, Italy ― Where is Silvio Berlusconi? While the spread between the yields of Italy's bonds and German “bunds” rocketed up on Monday ― threatening to make Italy the next target in Europe's ongoing sovereign debt crisis ― the country's prime minister remained unusually quiet, leaving many Italians wondering.

Angela Merkel must have wondered too. In fact, the German chancellor gave Berlusconi a call Monday afternoon, her office said, to urge him to approve emergency austerity measures proposed by the government's economic czar, Giulio Tremonti.

Merkel's unusual move made waves in a country whose heavily politicized press has focused more on the latest scandals involving the prime minister and other politicians than on the state of the country's finances.

Despite Merkel's call, Berlusconi did not appear in public to reassure international investors that Italy would avoid a Greek-style crisis.

He did cancel a scheduled appearance at the first training session of his soccer team, AC Milan, and headed back to Rome today to deal with the “economic situation,” according to a government spokesman.

Looking at the numbers, international investors have more than a little to worry about in Italy.

The country’s debt has soared to almost 120 percent of GDP, the European Union's largest after Greece in proportion to the country's output. Italy owes a total of 1.8 trillion euros ($2.5 trillion) to its creditors ― more than Greece, Spain, Portugal and Ireland combined.

Moreover, its economic growth has nearly stalled in recent month and is lagging behind that of most of its European partners. Unemployment is ticking up and ― most worrying for an export-driven economy ― exports hover about 13 percent below their pre-crisis peaks.

None of this is news. But Italy has so far evaded the euro zone sovereign debt crisis that has brought Greece, Portugal and Ireland on the brink of defaulting on their debts and forced the European Union and the International Monetary Fund to bail them out.

What has saved Italy, according to Massimo Spisni, finance professor at Rome’s Luiss University, has been its “good reputation” in financial markets. “Its problems are well-known,” he told GlobalPost, “but so far it has always managed to deliver on its promises.”

That might be changing. “When a reputation is tarnished, it takes very long to rebuild,” Spisni said.

That is why the government's silence and political in-fighting worry him in the long term: “We didn't send a clear and unified message. In this time, we need to move ahead of the markets, like the U.S. is doing right now, and give them an unequivocal, strong answer.”

For Spisni, the test for Italy will be Thursday, when the country will have to renew a batch of its long-duration debt, with bonds expiring five and 10 years from now. “People might be ready to invest in Italy for one year,” he said. But will they be ready to do it for a much longer term?”

The markets' worries seem to have helped Tremonti, whose position in the government had looked shaky after Berlusconi had criticized him for not being a “team player” and other cabinet members had rejected his proposed cuts.

He had been further weakened by a corruption scandal that led prosecutors to seek an authorization to arrest Marco Milanese, a member of Parliament and one of his closest aides. According to court papers, Milanese paid 8,500 euros ($12,000) a month for a luxurious apartment in central Rome where Tremonti lived.

Today Tremonti presided over an emergency meeting with opposition leaders, who have said they won't try to delay the austerity package in parliament.

Berlusconi did not take part. But he put out a lengthy statement to reaffirm Italy's commitment to balancing its budget. “We must be united, cohesive in our common interest, conscious that the efforts and sacrifices of a brief period will correspond to permanent and secure gains,” he wrote.

The prime minister's words came at the end of a hectic day when Italian bonds plummeted again before being shored up ― not by Berlusconi's intervention but by Tremonti's decision fly from Brussels to Rome to personally oversee the approval of the financial package in parliament. But such a balance of power cannot suit even a weakened Berlusconi for long.