Italy Needs a Statesman Not a Salesman

posted by Geoff Andrews at Friday, August 26, 2011

MSN 25 August

The sharp fall in Italian markets over recent weeks has plunged Italy into a severe economic crisis, with the alarming prospect of the third largest economy in the Eurozone asking for a bailout. Emergency meetings between Italian government officials and EU officials were followed by the decision of the European Central Bank (ECB) to buy Italian government bonds and thereby reduce borrowing costs, as long as the Italian government introduced radical austerity measures. While offering some immediate relief for the Italian economy, it has so far failed to bring any stability, with the Milan stock exchange and FIAT suffering major losses in recent days.

The austerity measures include cuts to regional government, public sector employee salary benefits and a ‘solidarity’ tax for employees earning in access of 90,000 euros. These have already been hotly debated within the cabinet and parliament, with Italy’s Prime Minister Silvio Berlusconi having to retreat heavily on previous commitments to reducing taxes, at the cost of much discontent from the Northern League, his main coalition ally. In fact many of these proposals recommend the precise opposite to the key tenets of ‘Berlusconismo’; the populist programme of low taxes and quick fixes which brought him to power in the first place.

However, more worrying for Italy’s long-term recovery has been the continual political crisis at the heart of the Italian government. Indeed, it is the Berlusconi leadership which remains Italy’s biggest cause for concern. In his keynote speech to the Italian parliament on 3 August, postponed until after the markets closed and intended to calm fears about rapidly escalating debt, Berlusconi refused to accept that the Italian economy was in serious crisis or that there was any doubt that it would recover. The economy, he announced to general incredulity, ‘is solid’. As a result he failed to advocate any long-term reform package or viable economic strategy. Instead, he fell back on his populist stance as a successful businessman who understood the needs of the Italian economy.

In fact, not only did Berlusconi’s speech do little to raise market confidence over Italy’s spiralling debt problem, it has prolonged Italy’s political stalemate. It is this long-running political crisis which casts most doubt on Italy’s prospects for urgent reform. As the respected Corriere della Sera columnist Massimo Franco has put it recently: Italy is ‘in a climate of stable instability’, and there is little indication of breaking out of the impasse while Berlusconi remains in power.

While its economic woes have to be understood in the context of a wider Eurozone predicament, the lack of political reform, absence of economic strategy and internal cabinet divisions offer little hope for long-term change while Mr Berlusconi remains in power. It is revealing that despite the Italian government’s earlier austerity package and subsequent announcements that it would aim to balance its budget by 2013, it has taken external pressure in the form of the European Union rather than a national strategy formulated by the Italian government to raise optimism of a revival of Italy’s economy. As many commentators have argued, Europe needs strong and decisive leadership at this time. Berlusconi, however, is clearly not up to the task.

As the country most vulnerable to the Greece scenario, Italy desperately needs some statesmanlike intervention. It has been held back by internal political conflicts, notably those between Berlusconi and his Treasury Minister Giulio Tremonti over the former’s earlier proposal of tax cuts, and pressure from the regionalist Northern League for devolution, including fiscal federalism and the movement of government ministries to the North.

Instead, what we are witnessing in Berlusconi’s leadership is less that of a statesman and more the machinations of a salesman. Engulfed in allegations of corruption and sex scandals, a large part of his political energy is now devoted to protecting his interests, through hastily prepared parliamentary immunity legislation or attacks on the prosecuting magistrates. Though he has already nominated Angelino Alfano, his former justice minister, (and the originator of the Alfano Law in 2008 which gave parliamentary immunity to the top four positions in government before it was declared ‘unconstitutional’), as his successor, he has already ruled out early elections and insists he will not change course. His main focus seems to be developing an exit strategy on his terms which limits his chances of further prosecution. It is now abundantly clear that Italy’s political and economic stability has been compromised because of the private and public predicaments of Silvio Berlusconi.

The likelihood of Italy finally introducing some liberalisation measures owes little to any initiative on Berlusconi’s part. His governments have had a long time to formulate a strategy to deal with rising debt, but instead they have reacted belatedly to market pressures. The crisis is also a reflection of the ineptness of Italy’s opposition and, after all that it has happened, the unwillingness or inability of his government allies to act against him, while Mr Berlusconi has dismissed the possibility of being replaced by a ‘technocratic’ government made up of cross-party or independent figures such as Mario Monti, the former European Commissioner. If he is allowed to carry on for much longer then Italy’s economic future is bleak indeed.