What do you get when you mix a pretty Moroccan belly dancer, a G8 leader with a penchant for teenage girls and an Opposition politician who wants the leader in question to resign? A fresh Italian political crisis that is spilling over into the Italian bond market, one of the world's biggest.
Sex scandals and Prime Minister Silvio Berlusconi are, of course, absolutely bog-standard news in Italy. The naked and semi-naked parties in villas, pools and palatial apartments, complete with testimonials from some of the alleged rental ladies who attended them, never seem to end. But increasingly they are being met with disdain and embarrassment by Opposition politicians and voters, some of whom are calling for the aging Lothario's head.
The latest sexcapade was more serious than most. It involved "Ruby Rubicuore" (Ruby the Heart Stealer), the Moroccan teenager whose real name is Karima Keyek and who is not, as she had claimed, the niece of Egyptian President Hosni Murabak.
Last week the Italian press was delighted to report that Ms. Keyek had attended no fewer than three parties at Mr. Berlusconi's Villa Arcore near Milan. The festivities included a playful little game called "bunga-bunga," whose ingredients were a pool, several naked showgirls and one naked prime minister. If that weren't enough, Mr. Berlusoni reportedly made a phone call to a Milan prosecutor to get Ms. Keyek sprung from jail for allegedly ripping off a dancer colleague for €3,000. This led to abuse-of-power accusations against Mr. Berlusconi, who denies leaning on the prosecutor to ensure her release.
The Ruby incident gave Gianfranco Fini, a former Berlusconi ally turned chief opponent, more ammunition to ramp up his anti-Berlusconi assault.
Mr. Fini is a former neo-fascist who is the speaker of the Chamber of Deputies (the government's lower house). He and Mr. Berlusconi co-founded the ruling People of Liberty Party last year. In April, Mr. Fini was evicted from the party for dissent and has been hounding his former boss since then. On Sunday, in a widely reported speech, Mr. Fini declared the Berlusconi government "adrift" and called for the prime minister to resign. "The guantlet has been thrown down, and with a vengeance," political commentator James Walson, of the American University In Rome, said in his blog. "Gianfranco Fini has finally come out in the open from his guerrilla warfare and has declared an open war."
Mr. Fini did not threaten to bring down the Berlusconi administration immediately, even though Mr. Fini's new party, numerically speaking, has enough power to do so. But it is now clear that Mr. Berlusconi's rule is under severe threat. Already, Italians are talking about the era "dopo Beruscloni" (after Berlusconi), as if he were dead man walking. A spring election, two years before Mr. Belusconi's mandate is supposed to expire, is possible.
The financial markets certainly sense Italy's political instability. On Monday, the yield premium investors demand to hold Italy's 10-year bonds over similar German bonds rose 4 basis points to 159 basis points, according to a Bloomberg report. "This escalation in political tension comes at an awkward time given the recent rise in market concerns for other high-debt countries," said UniCredit Group chief economist Marco Annunziata. "A full-fledged political crisis would inevitably result in some widening of spreads on Italian debt."
While Italy is coping with the debt crisis better than Greece, Spain and Portugal, it has to be exceedingly careful not to let spreads widen much more. That's because Italy has the second highest debt-to-gross domestic product ratio on the planet, after Japan, a stagnant economy, an unaggressive austerity program and the need to sell on average €1-billion a day to the international debt markets. Standard & Poor's recently confirmed Italy's A+ debt rating, but cited political instability as the main risk to the rating.
With Italy on the verge of a full-blown political crisis, the bond yield spreads are more likely to widen than narrow. Does Mr. Berlusoni care? He claims he does. No doubt he will deal with the stress with another clothes-optional party or two.