Bersani vows to shake off shackles of rigid austerity

Italy's Pier Luigi Bersani has vowed to break free of the country's austerity regime as he laid out plans for a centre-left government, risking a serious clash with Germany and the European Central Bank.

Italy's Pier Luigi Bersani has vowed to break free of the country's austerity regime as he laid out plans for a centre-left government, risking a serious clash with Germany and the European Central Bank.

"We must leave the austerity cage," he told leaders of his Democrat Party, responding to Italy's electoral earthquake by tearing up his pre-election program.

"A change of course is absolutely necessary given that five years of austerity and attacks on workers have pushed up public debt levels across Europe.

"The vicious circle between belt-tightening and recession is putting representative government at risk and making it impossible to govern. The immediate emergency is the real economy and joblessness."

The pledge puts Mr Bersani on a collision course with the ECB, which is constrained from helping to shore up the Italian bond market unless Rome complies with Europe's austerity agenda.

"Italian voters may have effectively voted away the ECB safety net," Christian Schulz from Berenberg Bank said. The central bank cannot activate its bond purchase program unless Italy requests a rescue from the EMU bailout fund, and that in turn requires a vote in Germany's Bundestag.

"The ECB cannot - and will not want to - do anything to help Italy after the inconclusive election result, even if borrowing costs spiral out of control," Mr Schulz said.

Mr Bersani's Democrats and his allies control the lower house but failed to win the Senate. He is hoping for tacit support on a law-by-law basis from the Five Star Movement of comedian Beppe Grillo.

Mr Grillo has called Mr Bersani a relic from a defunct political order that must be swept away by civic revolution. Yet many of his 163 senators and deputies say the movement should seek common ground with the Democrats.

Mr Bersani said Italy should mobilise its voting weight in the European Union to push for an EU-wide change of course. He has natural allies in Paris.

French Finance Minister Pierre Moscovici warned colleagues in the European Monetary Union on Monday that present policies "risk a loss of social and political confidence across Europe. We must not pile austerity on top of recession."

Mr Moscovici said France would need an extra year to meet its deficit target of 3 per cent of gross domestic product and called for action to tackle the root of the crisis with an EMU-wide growth strategy.

French officials are deeply alarmed by the relentless upward rise in France's unemployment rate to 10.6 per cent, or 26.9 per cent for youth. President Francois Hollande's popularity ratings have crashed from 55 per cent to 30 per cent since his election in May, the fastest decline ever recorded for a French leader.

Italy, France and Spain toyed with a Latin alliance last year to confront Germany over EMU's contractionary policy mix but the initiative faded.

Mr Hollande pulled back from a showdown with Berlin and ultimately pushed through further fiscal cuts and reforms, while Italy's Mario Monti was never willing to jeopardise the European Project that he served for 10 years as a commissioner.

Critics say Mr Monti, whose Civic Choice list won just 10 per cent of the vote, went native in Brussels long ago and has been slow to understand the deeper political crisis unfolding in Italy.

The outgoing prime minister gave them fresh ammunition this week, saying it would be better to hold fresh elections than to see an anti-EU government take power.

It is unclear whether a second vote would achieve what he intends. The latest snap polls show Mr Grillo's support is still rising, jumping from 25 per cent to 28 per cent.

Ominously, nostalgia for Fascist leader Benito Mussolini has started to emerge as the postwar order crumbles. Two key figures have praised elements of Fascist rule over the past two days.

A leader of the Five Star Movement professed "fascination" with the Fascist sense of the Italian state and the family, while the deputy state secretary of the economy said Mussolini "governed well until 1935". The taboos are falling one by one.

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