It's the Economy, Stupido

Last and most important of all, the Berlusconi government is perceived to have mismanaged the economy. Economic growth in Italy has been well below the EU average--no mean feat, given the EU's tepid record. The mountain of public debt has started to increase again (currently 108 percent of GDP). Standard & Poor's cut Italy's debt rating in 2004 and is likely to do so again this year. And a sheaf of reports by the EU, the OECD and the IMF have lambasted Italy for not doing more to liberalize its economy and get public spending under control. In 2001 Berlusconi promised to improve infrastructure with a large program of public works. But few projects have been approved, and one that has, a bridge connecting Sicily to the mainland, has "white elephant" written all over it. Italy has slid down all the principal league tables of international competitiveness (it ranks alongside Botswana according to the World Economic Forum) and is suffering from a severe brain drain as its best young researchers flee from a university system that has pockets of excellence but does not operate according to rich-world standards of academic merit.

The financial markets and the banking sector, meanwhile, are bywords for murky deals and closet national protectionism. In December the governor of the Bank of Italy, Antonio Fazio, belatedly resigned after judicial investigations began into his attempts to thwart an unwanted takeover of a prominent northern Italian bank by a Dutch rival. Unsurprisingly, foreigners are not beating down the doors to invest: For a $1.7 trillion economy, Italy attracts a derisory quantity of foreign direct investment.

In all fairness, Berlusconi cannot be blamed for most of these problems: They are the legacy of decades of poor public policy and of the contradictory attitude of the Italian electorate, which is angry at Italy's economic stagnation but which takes to the streets whenever painful remedies are suggested. Even so, the House of Freedoms could have done more since 2001. Berlusconi's government has kept the books in approximate balance only through amnesties for wealthy tax-cheats, not spending cuts. It flinched from allowing the basket-case state airline Alitalia to go under in 2004. It has introduced overdue measures of labor market reform (which have had an immediate and positive effect on the unemployment numbers) but has done little to liberalize the almost medieval guilds that control the various professions.

More generally, Berlusconi has evinced a public optimism about Italy's economic prospects that seems at odds with reality. Italians are rich, he repeats tirelessly. If there are problems, he avers, they are traceable to "Prodi's euro", which has raised the cost of living and reduced Italy's opportunity to revive the economy with deficit spending and cheap money like his caro amico George W. Bush has succeeded in doing in the United States.

It is precisely this kind of rhetoric that is alarming the rest of the EU. Does Berlusconi mean it? Surely he realizes that Italian sovereign debt, absent the euro, would be pulverized in the bond markets. The suspicion, however, is growing that fiscal prudence is an even more onerous burden for Italian populists than for American big government conservatives. Nothing in the government's record over the last five years suggests that a Berlusconi victory will lead to the sound management of Italy's public finances.

A Government that Governs

A center-left government may prove more adept at managing the public finances than a renewed center-right administration. But the personal and ideological jealousies dividing the Union's leadership are as disruptive as those splitting the Right. The two biggest parties in Prodi's coalition, the Left Democrats and Democracy and Liberty (known as the Margherita, after its electoral symbol, the daisy), never miss an opportunity to snipe at each another and steal electoral advantage. They are rivals, as well as partners. A project to fuse them into a single "Democrat" party capable of getting over 30 percent of the vote has met sturdy opposition inside both parties for this reason, though Prodi would like it to happen. It may yet occur.

Both the Margherita and the Left Democrats can at least talk the talk of economic liberalization and balanced budgets. Whether they can walk the walk remains to be seen. Their relatively good performance in this regard between 1996 and 1998 was compelled by the need to enter the euro; the three years before Berlusconi's 2001 victory were characterized by futile squabbling and a pre-election spending spree. But if they do try to address Italy's structural economic problems with supply-side reforms, Rifondazione and the other far-left parties in the coalition will vigorously resist the introduction of what Bertinotti loftily dismisses as "cannibal capitalism" and may press for the introduction of such investor-friendly measures as a wealth tax.

Italy today urgently needs a decisive government that makes restoring national competitiveness its primary task. Unfortunately, it is precisely this sort of government that its political class cannot provide, though many leading politicians on both the Left and the Right know that painful restructuring cannot be delayed much longer. The electoral law, which was amended in 2005 to restore near-perfect proportionality of representation, has made it impossible for a political force commanding only a plurality of the national vote to form a strong government. Italy will not have a Thatcher or anybody remotely like her. Italy's current parliamentary institutions--which like the U.S. Congress boast a complex and powerful committee system and two chambers armed with equal legislative powers--also make introducing systemic reforms difficult.¹

A possible alternative has been broached by "Super Mario", the first-rate former EU commissioner for competition, Mario Monti. He has proposed both the creation of a government of national unity backed by moderates from both the Center Right and the Center Left, and an immediate program of economic reforms, to be introduced by a bipartisan majority as soon as possible after the election.

The latter of these suggestions will probably sink in the mire of the electoral campaign, which Berlusconi launched at the end of January with a media blitz of disconcerting proportions. The former is not impossible if Prodi wins by a small margin but proves unable to govern, or if there is a hung parliament, though constituting such a government would require an act of considerable political courage on the part of President Ciampi or his successor.² In 1995, after the collapse of Berlusconi's short-lived first government, then-President Oscar Luigi Scalfaro charged Lamberto Dini, a former governor of the Bank of Italy, with the task of leading a government of technocrats recruited from outside Parliament. Dini governed for 15 months with the parliamentary support of the Center Left and the Northern League and managed to deliver a substantive pension law that has had huge long-term benefits. It may seem undemocratic to say so, but a reprise of this form of government, under Monti or some other authoritative figure, may be the best Italy can currently hope for.

1 One of the most controversial laws passed in 2005 by Berlusconi was a constitutional reform that would devolve considerable powers to the regions, strengthen the office of the prime minister and turn the Senate into a "Chamber of the Regions." The reform, which was the Northern League's price for staying in the government, must now be submitted to a national referendum and will in any case not come into force until the next decade.

2 The president of Italy has the constitutional authority to nominate the premier. President Ciampi's seven-year term expires this summer. Ciampi, who is in his mid-eighties but in good health, may yet be renewed in office.

Mark Gilbert teaches contemporary history at Trento University in Trento, Italy. He is the author, among other books, of The Italian Revolution: The End of Politics, Italian Style? (1995).