A fist fight broke out amongst deputies in the Italian parliament during a tense debate on the country’s austerity reforms, ahead of a critical meeting of eurozone leaders.
The failure of the Berlusconi government to agree on key reforms to retirement age and other deficit reduction measures after a cabinet revolt by members of the eurosceptic Northern League on Monday spooked markets and further undermined confidence in the country's economy.
It was two Northern League lawmakers who were involved in the scuffle in parliament, Reuters reported. The pair fought with members of the opposition FLI party.
Northern League supporters chanted "resign, resign", according to reports.
Italy’s debt levels are more than 115% of its gross domestic product (GDP), and the market’s lack of confidence in its ability to repay have seen yields on its bond issuance rise to unsustainable levels.
The government is due to put forward a plan detailing its economic and structural reforms today, having already missed previous deadlines. Analysts are far from convinced that it will reassure markets.
“It looks as though it will be too little, too late,” Alessandro Leipold, the chief economist at the Lisbon Council. “No timetable, no specifics, a long list of what they’ve already done but little about what they intend to do and when they intend to do it.”
“Italy quite honestly is now in a dysfunctional state,” he added.
Rumours circled on Wednesday morning that the increasingly unpopular Silvio Berlusconi had agreed a deal to step down and hold elections in the New Year, but while encouraging for analysts, they were not substantiated.
The European Central Bank (ECB) has been propping up Italian bond markets through its asset purchase programme, but how long it will be willing or able to do so, in the absence of meaningful reform to the economy and an improvement in market sentiment, is unclear. The extent of the ECB’s bond buying programme is one of many questions being debated at this evening’s European summit.
While Greece, Portugal and Ireland are all relatively small economies in the European context, Italy is the third largest in the eurozone. A failure there would have serious ramifications for the single currency area.
“Italy is the weak dyke in containing the spread of contagion,” Leipold said. “That’s why Merkel and Sarkozy, leaving aside the little smiles that much irritated the Italians on the weekend, it’s understandable that they should be putting so much pressure on the Italians because otherwise the ECB itself is going to find it very difficult to continue buying Italian bonds.”