Italian politics. Prodi’s unhappy new year

A new scandal threatens to dent the centre-left's election chances

FEW European countries face a more crucial year than Italy. A general election on April 9th will decide whether Silvio Berlusconi's centre-right coalition, elected in 2001, continues in office. The controversies that always surround Mr Berlusconi, and even more his disappointing management of the economy, have made his government deeply unpopular. Italy badly needs radical reform, yet Mr Berlusconi's coalition, notionally committed to economic liberalism, has done precious little in its five years in office.

Thus a much-hyped shake-up of the pension system will not now take effect until 2008. Labour-market reforms have been started but not expanded. A strengthening of the country's corporate-governance laws, pushed through just before the end of 2005, was a delayed response to the Parmalat scandal of 2003. And the economy has stuttered since Mr Berlusconi came to power. Most estimates of GDP growth last year are coming in at no more than 0.2%. This year Italy will once again have the slowest-growing economy in the European Union.

The centre-left opposition, led by a former prime minister (and former president of the European Commission), Romano Prodi, could hardly have wished for a more propitious start to an election year. But its new-year euphoria lasted all of 24 hours. By January 2nd, the formerly communist Left Democrats (DS), the biggest party in Mr Prodi's alliance, the Union, was in crisis. A Berlusconi-backed newspaper, Il Giornale, had published extracts from a telephone call recorded by magistrates that puts the party's secretary-general, Piero Fassino (pictured above, talking to Mr Prodi), centre stage in Italy's long-running scandals over bank takeovers. These have already led to the arrest of several bankers and to the downfall of the Bank of Italy's governor, Antonio Fazio.

Mr Fazio fell amid claims that he had blocked the purchase of Banca Antonveneta, by a foreign lender, ABN AMRO, backing instead a bid by an undercapitalised rival, Banca Popolare Italiana (BPI). Meanwhile another Italian financial concern, the insurance firm Unipol, was battling another foreign bank, Spain's BBVA, for control of Banca Nazionale del Lavoro (BNL). It is around this second bid that the latest controversy has erupted.

Although it is publicly quoted, Unipol is controlled by Italy's co-operative movement. Since 1999, its has pursued an aggressive policy of acquisition, more than quintupling its premium income. The telephone transcripts, whose authenticity has not been questioned, make clear that Mr Fassino sees this eminently capitalist predator as an extension of his party. After being given details of Unipol's bid for BNL by the company's chairman, Giovanni Consorte, Mr Fassino is quoted as exclaiming: "So then. We're the bosses of a bank." He then hastily corrects himself, saying, "You are the bosses of the bank. I have nothing to do with it."

Mr Fassino's spokesman has stressed that the transcripts offer no evidence of wrongdoing: the party leader was merely gathering information. The publication of his remarks by a newspaper belonging to the Berlusconi family is surely part of a campaign to discredit the centre-left.

No doubt this is true. But it is also beside the point. Unipol, with its headquarters in "red" Bologna, on Via Stalingrado, was supposedly a model of all that the left can bring to capitalism. The home page of its website is plastered with such words as "transparency" and "ethics". Yet, with the apparently wholehearted support of the DS's leader, it has embarked on an audacious bid that is claimed to have involved several irregularities.

Unipol outbid BBVA by recruiting the support of a group of property developers, some of whom were also involved in the BPI fight with ABN AMRO. Prosecutors believe that central participants in both bid battles secretly helped each other to build up their shareholdings. They also claim that Mr Consorte and his chief executive obtained unsecured loans of euro4m ($4.8m) from BPI that were used for trades that netted each euro1.7m.

Unipol is under investigation for its role in both bids. Mr Consorte resigned as chairman last month after being questioned by investigators. He is also under investigation in Milan for alleged market-rigging in connection with the bid for Banca Antonveneta, and in Rome for the same activity in relation to the offer for BNL.

Italy's stockmarket regulator had already ordered Unipol to raise its bid after discovering that the insurer had increased its holding in BNL through an undisclosed agreement with Germany's Deutsche Bank. BNL has complained about the structure of Unipol's offer, both to the courts and to regulators. Small wonder that the bid is still awaiting formal approval six months later--a potential early headache for Mr Fazio's successor, Mario Draghi (see box). Small wonder, too, that some on the left are so dismayed by protests from the DS leadership that nothing is amiss.

"I talk to a lot of people from the grassroots of the DS," commented the Nobel laureate, Dario Fo. "They are furious about Unipol. They feel betrayed and above all indignant over the shadow that has been cast over the history of the co-operative movement." A veteran DS leader and former minister, Giorgio Napolitano, has said that Mr Fassino should at least admit that he has misjudged both Mr Consorte and the implications of Unipol's strategy. Peppino Caldarola, a former editor of the party daily, L'Unita, says he is "embittered, bewildered and disappointed".

Foreign investors could be forgiven for sharing at least some of these sentiments. Quite apart from the potential damage it may do to the centre-left's election hopes, Mr Fassino's involvement with Unipol threatens further to dent Italy's reputation in the international business world, already battered by the Parmalat and Fazio affairs. It reinforces a view of Italy as a country in which entrepreneurs need political patronage to succeed. Just as important, it suggests that political leaders, of left and right alike, remain incorrigibly protectionist at heart.

In this, of course, they are faithfully mirroring general social attitudes. Among the myriad words penned and broadcast on the Unipol affair barely any have condemned a venture that was so manifestly at odds with Italy's commitment to liberalise and to opening its markets to EU and other foreign investors. Italy's atavistic protectionism and disdain for freer markets both play a large part in holding back its economy--and will not necessarily change even if its government does.

A new scandal threatens to dent the centre-left's election chances in Italy in 2006.