Angela Merkel and Nicolas Sarkozy were more than a little ticked off when Italian Prime Minister Silvio Berlusconi showed up for the Cannes summit “empty handed”. In response. Merkozy proposed a new Troika for Italy and sent inspectors to pour over Italy’s books.

Courtesy of Google translate, please consider Europe puts Italy under surveillance

While outside the world has their eyes on Greece, Italy is to be found in the line of sight of the negotiators inside the palace in Cannes.

“The subject is no longer Greece: the real goal is to stabilize Italy,” says one side of Brussels. European leaders were particularly incensed to see Silvio Berlusconi land at Cannes without any concrete steps to ensure the fiscal trajectory of his country, providing a return to balanced public accounts in 2013. At the summit of 27 October, the Italian Prime Minister promised to present to the G20 a new package of measures.

Proposed new troika

Greece – which weighs 2% of GDP in the euro area – is a manageable issue. However, an implosion of Italy and its 1.9 trillion of debt would be far more dramatic. To reassure the markets, it is imperative that each country meets its commitments attacked. To this end, several officials in Brussels would have gone to Rome to check the progress of previous reforms.

And now, the Commission does more to go beyond, strengthening the role of the monitoring team. This would create a kind of troika, on the model of regularly examining Ireland, Portugal and Greece. With one difference: there is no question at this stage to lend money to Rome.

Moreover, Berlusconi is under intense pressure from his own cabinet and he will likely be the next Prime minister to fall.

Please consider Italy PM faces more pressure to resign

The calls on Berlusconi to resign come a day after he failed to win support at a cabinet meeting on comprehensive reforms to stimulate growth and cut the European country’s massive debt.

Meanwhile, six of the Italian premier’s former parliamentary loyalists are calling for a new government.

The deputies, three of whom have already left Silvio Berlusconi’s crumbling coalition, wrote to the prime minister that Italy needed a “new political phase and a new government,” Reuters reported.

“We are asking you to take an initiative which is appropriate to the situation,” the deputies said.

Opinion polls show Berlusconi’s popularity is at an all-time low. He is also facing charges of bribery, tax fraud and abuse of power.

Flush with a Pyrrhic victory over Greece (but not recognized as such just yet), Merkozy is stepping up the pressure on Italy. Expect more pressure on Spain and Portugal as well.

Although reforms are badly needed, Greece, Spain and Portugal are already imploding and budget targets will be increasing hard to meet the more austerity measures are crammed down taxpayer throats.

Recovery timelines and haircuts are both insufficient, and budget expectations are outright preposterous across the board.

Mike “Mish” Shedlock
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