Berlusconi Immunity Denied: Italy ETF Under Pressure?

Oct. 8.09 | About: iShares MSCI (EWI)

Italy’s top court ruled on Wednesday that a law granting Prime Minister Silvio Berlusconi immunity from prosecution was in violation of the country’s constitution, a development that makes the head of state vulnerable to claims of fraud and corruption. The ruling is widely expected to limit Berlusconi’s ability to push through social and economic reforms as Italy, the Euro zone’s third largest economy, tries to keep its recovery on track.

The law, introduced by Berlusconi last year, had allowed him and three other key government figures to avoid prosecution during their time in office. It had been used earlier this year to protect the media mogul turned politician from charges that he paid a lawyer for providing him favorable evidence in previous trials. With the immunity law now tossed out, two trials involving Berlusconi will now resume, one involving the payments to lawyer David Mills and another focusing on financial irregularities in the selling of program rights in the Mediaset TV empire.

Blow to Italian Recovery?

Economists expect Italy to exit its worst recession since World War II in the fourth quarter of 2009, lagging behind the larger European economies of France and Germany (which saw growth in the second quarter of the year), but ahead of many other developed markets that are expecting prolonged economic troubles (such as Spain). Berlusconi’s conservative government had recently been projecting GDP growth of 0.7% in 2010 following an anticipated contraction of 4.8% in 2009.

Italy ETF Holds Its Ground

The iShares MSCI Italy Index Fund (NYSEARCA:EWI) was flat following the overturning of the law, perhaps reflecting investor sentiment that the groundwork has already been laid for a recovery that will continue with or without Berlusconi. EWI, which was down less than 0.1% in Wednesday afternoon trading, has gained almost 25% year to date.

EWIClick to enlarge

Disclosure: No positions at time of writing.