Last updated: October 1, 2013 9:39 pm

Italian markets soar as Berlusconi threat to government fades

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Silvio Berlusconi is facing a growing revolt from his own centre-right party over his attempts to bring down Enrico Letta’s coalition government, sending Italian stocks soaring on expectations that the prime minister would survive a vote of confidence expected in parliament on Wednesday.

Angelino Alfano, the secretary of Mr Berlusconi’s People of Liberty (PDL) who has emerged as the leading voice of centre-right “moderates”, declared after meeting Mr Letta on Tuesday that he remained convinced that the entire party should vote to support the centre-left prime minister.

His comments were backed by Carlo Giovanardi, a moderate PDL senator, who said a majority in the party wanted to back Mr Letta, who is due to address both houses of parliament on Wednesday.

The internal revolt against Mr Berlusconi by some of his closest associates represents the most direct challenge to his leadership in 20 years and comes just weeks before the billionaire media magnate is due to start serving a one-year sentence for tax fraud imposed by Italy’s highest court on August 1.

Hopes that Italy would avoid destabilising elections before the end of the year sent shares higher on the Milan bourse. The FTSE MIB index closed up 3.1 per cent, more than recouping Monday’s losses, with Mr Berlusconi’s Mediaset television group soaring over 6 per cent. The spread between Italian 10-year bonds and German Bunds narrowed sharply from 279 basis points to 258 bps.

Mr Berlusconi triggered the crisis at the weekend by calling for elections “as soon as possible” and ordering the resignation of his party’s five ministers – including Mr Alfano – from the left-right coalition he formed with Mr Letta’s Democrats last April.

Mr Berlusconi met party officials on Tuesday night and was reported to have insisted that the PDL vote against the government, setting the scene for a test of his authority over Mr Alfano and other dissenters. Mr Letta, meanwhile, rejected the resignations of the five centre-right ministers ahead of the vote of confidence expected in both chambers late on Wednesday.

The 77-year-old former prime minister rebranded the PDL last month under the flag of Forza Italia, the first party he founded in 1994, and defiantly declared he would not withdraw from politics despite his expected expulsion from the senate this month. But Mr Berlusconi faces the risk that a large number of rebels would refuse to join a new party they see as dominated by what Mr Alfano has called “extremists”.

Mr Alfano, 42, has been one of Mr Berlusconi’s closest allies, rewarded for his loyalty by becoming Italy’s youngest justice minister in 2008 when he devoted much of his efforts – rebuffed by the Constitutional Court – to guarantee his mentor immunity from prosecution. As secretary of the party he was widely seen as the heir apparent until Mr Berlusconi, who resigned as prime minister in late 2011, stepped back into the frontline of politics a year later. Mr Berlusconi withdrew his party’s support for Mario Monti’s technocrat government, triggering elections last February which resulted in the current deadlock with the anti-establishment Five Star Movement holding the balance of power in parliament.

Beppe Grillo, the comic-activist leader of the movement, has had to deal with his own internal divisions. Four senators purged from the party for dissent said on Tuesday they would vote to support the government despite Mr Grillo’s call for snap elections.

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