The oddities of markets
It seems that equity and credit markets both rallied as it seemed that Silvio Berlusconi was about to be deposed, and then both took a tumble (especially Italian bonds) as it became clear that he would not be. This doesn’t quite seem right to me – who exactly are these investors who think that political chaos is more likely than not to generate a net improvement in Italy’s finances? Berlusconi’s fall would most likely not result in the ascension of a Europhile technocrat who easily aligns with the international community, marshals resilient parliamentary support that will last for a years-long program, and rallies Italy’s public behind austerity. Every single part of that sentence has to hold true for Berlusconi’s fall to be a good thing, and I think when you phrase it like that you get a better sense of what a tough situation Italy is in right now.
Side note: Based on all I’ve heard about Berlusconi’s various trials, it sounds like there’s a pretty good chance that if he’s not PM he might be in a whole heap of legal trouble over things like statutory rape. This is not being invoked to explain his resistance to relinquishing power, but I can’t help but think that if I were Berlusconi, I would find it highly germane.