Concerns over the stability of the Italian government grew on Thursday after Silvio Berlusconi's party withdrew its support from Premier Mario Monti, threatening to bring a premature end to the administration's ambitious reforms program.
Expressing disappointment over Italy's stagnant economy, Berlusconi's center-right PDL party abstained from two confidence votes Thursday, one in the Senate and one in the lower Chamber of Deputies.
Although the government of unelected technocrats won both votes by a wide margin, investors were concerned that there could be a new period of political uncertainty because Monti had lost the support of Berlusconi's party, the largest bloc in Parliament.
Monti declined to weigh in on the political fray, telling a news conference his government was "going ahead with its work." Monti was appointed to replace Berlusconi, who resigned last year when financial markets lost confidence in his ability to steer Italy through its worsening sovereign debt crisis.
Many credit the current Prime Minister with bringing back some market confidence in the country, pulling it back from the edge of financial disaster it was teetering on last year.
"There is the whiff of crisis," political scientist Roberto D'Alimonte of Rome's LUISS University said on Sky TV 24. "We will see in the next hours."
President Giorgio Napolitano in public comments acknowledged that the political climate was tensing up, as campaigns gear up to elect a new government early next year, when Monti's mandate expires. Napolitano could dissolve Parliament a few months earlier if he feels that the government no longer has wide support in Parliament. But, even as financial markets dropped on the news of the abstentions, Napolitano warned against a "precipitous" conclusion of Parliament as he takes the pulse of Italy's top political parties.
Berlusconi's top political aide and designated political heir, Angelino Alfano, insisted that the media mogul's party had no intention of sparking a crisis that could bring down the government.
"We could have voted 'no' on the confidence votes but in a sign of responsibility we abstained," Alfano told reporters. But he described the abstentions as a "clear signal" that Berlusconi's center-right forces "don't like the way the economy is going." Alfano said he would pay a call on Napolitano on Friday to lay out his party's concerns.
While the center-left Democratic Party, or PD, has been invigorated by recent primaries, Berlusconi's party is in disarray. A former Berlusconi foreign minister, Franco Frattini broke ranks with most of his colleagues Thursday, voting in favor of the confidence measure.
Berlusconi, 76, and three times premier, has hinted that he will run again, and Alfano indicated at this point the conservative leader would make a run for a fourth term.
Recent polls show the PD with a minimum of 30 percent and Berlusconi's PDL party trailing with less than 15.
"Certainly, today's PDL decision to withdraw its support for Monti is significant and tends to confirm that the next few months will be bumpy for the Monti government," said Unicredit analysts Chiara Corsa and Loredana Federico.
After a period of seeming calm over Italy, investors have returned their focus to the country. The developments highlight the fragile nature of the consensus in Italy over Monti's economic reform program, which includes liberalizing the labor market and increasing the pension age.
The Milan stock exchange fell Thursday, with the benchmark FTSE MIB trading 0.7 percent lower, in contrast to most of Europe's main indexes, which were trading higher.
The worries were evident in the bond markets too, where the yield on the country's 10-year bonds rose by 0.12 percentage points to 4.52 percent.
The Italian economy, the third-largest of the 17 European Union countries that use the euro, is in recession as the government enacts tough measures to get a handle on its debts. Italy has the second-highest debt level as a percentage of its GDP in the eurozone — at 126 percent. Only Greece's debt is higher with 150 percent.
The popularity of Monti's government, over a year into power, has been slipped somewhat amid the recession, and political parties are positioning themselves for elections next year. The premier has said he would be available for a second term, but has excluded running for office. Monti sidestepped a reporter's question Thursday about his political intentions.
Monti could be tapped if no party wins a clear majority.
Berlusconi claims allies are pressing him to seek election again, hoping that Monti's painful austerity measures will win votes for the center-right.
Economic Development Minister Corrado Passera angered Berlusconi supporters by saying that it would not be good for Italy's image abroad "to go back."
"We need to give the sensation that the country is moving ahead," Passera said on RAI state-run television.
Besides showing poorly in the polls, Berlusconi also is appealing an October tax fraud conviction and awaiting a verdict in the coming weeks in his trial on charges of having sex with an underage woman and using his office to cover it up. He says he is innocent.
Leading the polls at present is the center-left Democratic Party, led by party secretary Pier Luigi Bersani who won his party's nomination in a two-weekend primary that reinvigorated the left.
While some smaller centrist parties have signaled that they would welcome another Monti term, Bersani has been particularly adamant that it is time for elected politicians to take over.
He called the center-right's tactics "irresponsible" and reaffirmed his party's loyalty and support of the Monti government during the present legislature.
Barry reported from Milan. Frances D'Emilio contributed from Rome.