Italian Prime Minister Mario Monti announced his resignation after his budget is passed amid falling confidence as well as support while Silvio Berlusconi announced his plans to run for premiership. Italian markets collapsed over 3% Monday morning as this delivers a huge blow to socialist politicians who needed Monti to govern Italy and force through austerity measures.

Italy is the world’s third biggest debtor country and the ECB as well as politicians out of Brussels have counted on Monti to continue their preferred approach of tough austerity measures in order to lower the Italian debt level. Austerity measures also reduce economic growth and therefore actually increases financial difficulties of countries rather than improve them.

Silvio Berlusconi, potentially with the assistance of the Northern League, vows to roll-back Monti’s austerity measures and act in the best interest of Italy and its citizens rather than be the puppet of Brussels and the ECB which continues to push for more austerity measures. Berlusconi, should he win the election, would start his fourth term as Prime Minister of Italy.
Berlusconi’s party, People of Freedom, never supported the socialists and Monti said that without the support of Berlusconi’s party he would not be able to run the government. Members of the People of Freedom part withheld their votes in the Senate on economic austerity measures which therefore fell apart.

Brussels is not pleased about Berlusconi and his comeback out of political darkness as he does not dance to the tune of economic socialism as well as austerity measures and would not be opposed to exit the Eurozone in order to get Italy back on track. His plans gather steam and would throw Eurozone supporters a curveball as they try to keep the countries in fiscal unity.

Berlusconi may actually support a dual Eurozone, a Euro North and a Euro South, as Italy would be the financial center for the Euro South and the central bank would be in Milan which would give Italy full financial control over the region. Those plans are currently dismissed in public, but circulate behind closed doors as it is the only smart solution to the Eurozone debt contagion.

Italy, regardless of who is Prime Minister, is also locked into a head-to-head with Spain over which country will falter first and beg for assistance as well as a full bailout. Spain’s situation is more dire and Italy waits for Spain to be the first one to go belly up as it would reduce borrowing costs for Italy while Italy has no intentions to seek assistance. Spain would be open to a joint plea for help which Italy refuses.

A return of Berlusconi will put austerity measures on hold and see a reversal of Monti’s economic policies while asking for a bailout will be completely off the table. Berlusconi’s return from political ashes will darken the economic cloud over Europe as he will do what is in the best interest of his country in the long-term with little to no interest to play nice in the Eurozone bailout sandbox.

More politicians like Berlusconi need to emerge in order for the Eurozone to be overhauled in a sophisticated manner which would send Europe through a few years of hardship before it emerges with a dual Euro currency and stable long-term economic growth.