Italian politics. Berlusconi risks his bacon

The prime minister's accession to the finance ministry has neither eased tensions within his coalition nor stopped a rating downgrade

A NEW biography of Silvio Berlusconi's wife reveals that her husband owns a collection of Napoleon figurines. Italy's prime minister may not have crowned himself emperor yet, but this week he took another step towards emulating his hero when he took control of economic policy. The country's head of government, richest man and owner of its three main commercial TV stations is now, even if only temporarily, finance minister as well.

This is not just bizarre, but perilous as well. That was underlined on July 7th when, alarmed by Mr Berlusconi's self-appointment and his high-risk plans, Standard & Poor's, a rating agency, cut Italy's long-term debt rating to AA-. This downgrade, which could sharply raise the cost of servicing Italy's huge debt, is the first to hit a member of the euro since the single currency's creation in 1999.

Until S&P's announcement, Mr Berlusconi was smugly hoping to have turned the tables on his adversaries in the government. His coalition has been cracking along a fault line that was always visible. In one camp are the prime minister's Forza Italia party and the Northern League, which both sprang from the north and broadly back liberalisation and constitutional reform to decentralise power. In the other are Gianfranco Fini's National Alliance, mainly composed of former neo-fascists, and the Union of Centre Democrats, largely consisting of former Christian Democrats, led by Marco Follini. These two parties, more reliant for votes on the poorer south and centre, are warier of liberalisation and fretful that decentralisation could widen the gap between south and north.

For some time, the hate-target of the second camp has been Giulio Tremonti, Forza Italia's acid-tongued finance minister, who shut them out of discussions, made policies they disliked and announced them without consultation. The biggest shock came in late March, when an ambitious plan for tax cuts was unveiled. Mr Fini and Mr Follini saw this as a blueprint for enriching northerners, using the proceeds of spending cuts that would fall heavily on their southern supporters.

After a miserable showing by Forza Italia in the European elections on June 13th, and in municipal and provincial ones two weeks later, Mr Fini felt emboldened to settle scores. Under growing pressure in his own party to pick off the finance minister, he made his move at a rancorous cabinet meeting on July 2nd, apparently saying to Mr Berlusconi “it's him or me.” The plan was for Mr Berlusconi to fire Mr Tremonti, which he did, and then hire Mario Monti, the highly respected EU competition commissioner. But Mr Monti declined. And by then Mr Berlusconi had made himself interim finance minister, although some advisers are still suggesting a new appointment will soon be made.

The risk was that an end to Mr Tremonti could also have spelt an end to Mr Berlusconi's promised tax cuts. The prime minister had already vowed that, if he failed to deliver them, he would not bother standing at the next general election. As his party's spokesman, Sandro Bondi, now puts it: “Who better than the prime minister to guarantee that this government's economic programme and fiscal reform are enacted?” Mr Fini and Mr Follini may find it harder to snipe at the prime minister than at his erstwhile finance minister - though this week's news that two of Mr Berlusconi's children are being investigated for alleged money laundering may make him more vulnerable.

Mr Berlusconi's extra job also offered temptations for his other role as media tycoon. Since the ownership of Italy's public broadcaster, the RAI, is vested in the treasury, he now has the power to dictate the financial policies of his main business rival and even to choose its chairman. “I like this job a lot,” Mr Berlusconi beamed after his first public engagement, a meeting in Brussels at which he persuaded fellow euro finance ministers not to give Italy an early warning for busting the stability-pact ceiling on budget deficits of 3% of GDP.

Even if Mr Berlusconi were a credible economic overlord, which he is not, he would still be a temporary, part-time one. And Italy's economic difficulties do not admit of temporary, part-time attention. The biggest criticism of Mr Tremonti has nothing to do with tax cuts, and everything to do with a failure to push through measures to tackle the structural weaknesses of the Italian economy. Handed a rare absolute parliamentary majority by voters, Italy's conservatives had an historic opportunity that has now been largely squandered. Three years into the Berlusconi government, there has been no pension reform, limited debt reduction, only modest privatisation and no growth-inducing jolts on either the demand or the supply side. These failings help to explain why Italy has been the most sluggish of the G8 rich countries to recover from recession.

The question now is whether Italy can afford the tax cuts its unexpected new finance minister wants. Can a country with a stagnant economy, public debt well in excess of GDP and under the (at least notional) constraints of the euro's stability pact, consciously forgo so much revenue? Standard & Poor's says the answer is “no”. But it remains to be seen whether that will deter Mr Berlusconi from pressing ahead with a policy on which he has staked his political survival.