You can’t win

Prodi waits for the call

Why Italian politics is impossible

MANY countries have complex political systems that reflect their past more than their present. But Italy's politics is unusually hard to fathom - just as its governments have been unusually fragile. In fact, considering the umpteen governments and prime ministers the country has got through, the system was for many years surprisingly stable.

Until the 1990s, Italian politics was dominated by two parties: the Christian Democrats and the Communists. Because by common consent during the cold war the Communists were kept out of government, every administration from 1946 to the early 1980s was led by a Christian Democrat. There followed a decade of coalitions, all of which included the Christian Democrats, but some of which were led by a Republican, Giovanni Spadolini, and others by a Socialist, Bettino Craxi.

This stable system was blown apart by three events that reverberate still. The first was the collapse of Soviet communism in the late 1980s, which led to a split in the Italian Communist Party. The second, starting in Milan in early 1992, was a series of bribery cases known as tangentopoli (bribesville), led by a group of magistrates who became known as mani pulite (clean hands). These cases led to the conviction and flight of Mr Craxi, as well as to the demise of most of the old parties. The third event grew out of the second: the decision by Silvio Berlusconi, a media magnate, to enter politics and found a new party, Forza Italia (roughly, "Go, Italy!").

Thanks in part to his money and his media empire, and in part to Italians' disillusionment with the old system, Mr Berlusconi enjoyed instant success. His centre-right grouping won the election in 1994, only a few months after the establishment of Forza Italia. But his government lasted only eight months before being brought down by one of his allies, Umberto Bossi's Northern League.

The first Berlusconi government was followed by a technocrat-led one. The next three governments were headed by centre-left prime ministers, the first of whom, Romano Prodi, led his "Olive Tree" coalition to victory over Mr Berlusconi's "House of Liberties" in the 1996 election. Mr Prodi brought in painful budget cuts and a special tax to ensure that Italy got into the euro, but the coalition then suffered a fit of internal squabbling. Mr Prodi was ousted and, in May 2001, Mr Berlusconi's House of Liberties coalition won a convincing majority over the Olive Tree coalition in both houses of parliament.

Go, Berlusconi!

This was the moment that Italian business had been waiting for. Here, at last, was a coalition of the right with sufficient political clout to bring in long-overdue reforms. Yet, as we have seen, they were destined to be disappointed. The House of Liberties coalition has implemented reform only in limited areas, and the economy's poor performance and the country's loss of competitiveness have continued unchecked. Budget deficits have been kept down mainly by one-off measures. And for the past 18 months or so, the centre-right has been trounced every time Italians have been allowed near a ballot box, starting with the European elections in June 2004 and culminating in the rout at the regional elections last April, when the centre-left won every region being contested except Lombardy and Veneto.

This dismal performance has four explanations. The first is that, right from the start, the Berlusconi government was distracted by the time and energy it devoted to measures to deal with the prime minister's own interests and to fend off judicial cases against him (see box later in this article). These included laws to downgrade the offence of false accounting, to make it harder to use evidence from abroad, to provide for cases to be moved to a different court if there is any suspicion of judicial bias, and to shorten the statute of limitations after which offences are automatically expunged. To top it all, in mid-2003 a new law was passed to give the prime minister, as well as four of his associates, blanket immunity from prosecution while in office. This law was, deservedly, struck down by Italy's constitutional court.

The second reason that reform has proved difficult is the state of the economy. As other European countries have found, it is much harder to deregulate product markets or promote more competition when there is little or no growth. Low growth also confounds the budget arithmetic and leaves no scope for higher spending or tax cuts to cushion the short-term impact of changes. The catch-22 is, of course, that reforms become essential precisely when the economy has run out of steam. The Berlusconi government is not alone in Europe in failing to resolve this conundrum.

A third factor is, however, more peculiar to Italy. The country has moved towards a bipolar system of two broad groups, the centre-right and the centre-left, in part thanks to an electoral reform in the 1990s which provided for some 75% of the seats in parliament to be elected on a first-past-the-post basis. This was meant to discourage splinter parties, yet the influence of smaller parties remains disproportionately strong. It may even increase if, as seems likely, the government succeeds in changing the electoral law to move back to full proportional representation. The opposition has cried foul over this reform, which seems tailor-made to disadvantage the centre-left. As things stand, it will also introduce a complicated system of thresholds for representation in parliament the effect of which on smaller parties is not yet clear. But most parties seem resigned to the new system.

The big problem, as Mr Siniscalco knows from bitter experience, it that pushing through potentially unpopular reforms is extremely hard when every party within a coalition has a veto. Although Forza Italia is the biggest party on the centre-right, Mr Berlusconi has had to keep on board the National Alliance, the Northern League and the Union of Centre and Christian Democrats. Each of these has its own constituency to protect, and none is a natural supporter of free markets.

The fourth point is perhaps the most important: that Mr Berlusconi himself is not a true believer in free markets either. His own business success was built on the creation of near-monopolies that, far from being attacked by antitrust authorities, benefited from political friendships. The most notorious example is his Mediaset television empire, which needed the strong support of a Socialist leader, Mr Craxi. But even his early business career depended on favours, such as diverting the flightpath out of Linate airport to boost the value of his properties near Milan. Mr Berlusconi's instincts are those of a trader in favours and privileges, not of a competitor in unfettered markets. That is a useful qualification for a politician, but less so for building a successful liberal economy.

Despite all this, the Berlusconi government has done some things right, and not only in labour-market and pension reform. The education minister, Letizia Moratti, has worked hard to promote research and to improve Italian universities, though there is still a long way to go. As one Italian university professor disarmingly puts it, "the nice thing about this job is that you don't have to do any work." Pay and promotion are largely determined by seniority, and Italy has proportionately fewer foreign academics than most other countries. Recent street protests in many cities led by university professors denouncing Mrs Moratti must be a sign that she is doing something right.

America's friend, and Russia's

On the whole, the government's foreign policy must be counted a success too. Mr Berlusconi braved the wrath of many of his EU allies and his own public opinion by sending troops to join America and Britain in Iraq, though he is now trying to argue that he had misgivings about the war and sought to talk George Bush out of it. His government has generally been more assertive about Italy's role in the world than its predecessors. Within the EU, it has been less deferential towards France and Germany. If Mr Prodi returns to office, he is likely to switch the emphasis back towards backing the Franco-German duo.

Mr Berlusconi's government has been more staunchly pro-American (and pro-Israel) than most previous ones. The one blot in foreign policy has been Mr Berlusconi's partiality for Russia's Vladimir Putin, whom he appears to see as another businessman-turned-politician under unfair attack from the media. During Italy's six-monthly presidency of the EU in 2003, Mr Berlusconi caused consternation in Brussels by refusing to criticise Mr Putin at an EU-Russia summit meeting in Rome. He also lost international credibility for his chairing of the EU summit in Brussels in December 2003 that failed to agree on the text of a draft EU constitution.

On defence, although like many other European countries Italy still spends too little, it has in the past few years made a useful contribution in places such as Kosovo and Afghanistan as well as in Iraq. The defence minister, Antonio Martino, is also seeing through a plan to abolish conscription and to overhaul the arms-procurement system. If Mr Prodi returns to office, there is a serious risk that his government might choose to pull troops out of Iraq too quickly, as Spain's then new prime minister, Jose Luis Rodriguez Zapatero, did after March 2004.

Mr Martino is one of Italy's few avowed liberals, but his influence on economic policy has, sadly, been small. Still, the government has at least brought in some tax cuts. Its stewardship of the public finances, however, has been dreadful. It inherited a useful primary budget surplus (ie, before interest payments) of as much as 5% of GDP, but it has frittered that away to zero (see chart 5). Moreover, although Mr Tremonti's repeated tax amnesties have seemed to keep annual budget deficits within bounds, the price of this may have been to increase Italy's already high level of tax evasion. Opposition politicians claim that tax evasion now adds up to as much as euro200 billion ($234 billion) a year. This bears heavily on those in paid employment, who find they have to pay higher taxes than they otherwise would.

Nor has the government made much of a dent in public spending. It is not hard to come up with ideas for cuts, just as it is not hard to find things to privatise. Giovanni Tamburi, an investment consultant based in Milan, has produced a detailed list of possible asset sales, including of foundations that still own some banks, as well as a programme of liberalisation. Such measures would, on his estimates, yield as much as euro200 billion a year. Some of these assets are, admittedly, in the hands of local authorities, but it remains striking how reluctant Mr Berlusconi has been to sell anything. Patronage, it seems, retains its allure.

Another undesirable legacy of the Berlusconi government is a devaluation of civic and public ethics. When a prime minister attacks his country's magistrates as part of a left-wing conspiracy, passes laws that benefit his own interests and issues repeated amnesties for people who have evaded taxes and ignored planning controls, he sends a message to the average citizen: do not bother to obey the rules. The judicial system badly needs modernising to speed up the processing of cases and reduce queues, and his government has introduced reforms which it claims will do this, but no one else seems to agree.

Would the opposition be a big improvement? It would undoubtedly encourage people to be more law-abiding, although even Mr Prodi has had minor brushes with scandal. Yet there is something dispiriting about the fact that Italian voters next April are likely to face the same choice as they did ten years earlier, between two candidates in their late 60s. Mr Prodi says many of the right things about introducing more competition and liberalisation, but you would hardly call him a liberal or a reformer. Moreover, like Mr Berlusconi, he will be hostage to other parties in his own coalition. He notes that, unlike in 1996, the Communists under Fausto Bertinotti are now formally part of the centre-left coalition, as opposed to backing it from outside, and denies that he is some sort of Mr "Prodinotti". But he knows that he will not find it easy to keep all the small left-leaning parties behind him.

He has made several efforts to increase his chances. The first was to suggest that the parties of the left should campaign on a single platform. This was shot down by one of his closest supporters, Francesco Rutelli of the Democracy and Freedom Party. However, the idea may now be revived, partly thanks to Mr Prodi's second plan: to hold a primary of all Italian voters to endorse the centre-left's candidate for the election. This was duly put into effect, and last month Mr Prodi overwhelmingly won the ballot, on a surprisingly high turnout. That has left him rather better placed not merely to face Mr Berlusconi but perhaps also to keep a grip on his own coalition if it wins.

What next?

Mr Berlusconi now seems sure to be the candidate facing Mr Prodi. Earlier this year he flirted with the idea of stepping down to make way for somebody more popular to lead his alliance, most likely Pier Ferdinando Casini, the speaker of the Chamber of Deputies. But he changed his mind, and after a few hiccups and with a few reservations, his coalition partners now seem to endorse his candidacy.

What would happen to the centre-right if Mr Berlusconi loses the election? Presumably he would quit, and few would then expect Forza Italia to survive in its present form. There are no obvious successors to lead the centre-right. Mr Casini is a possibility, but a more plausible candidate for the leadership might be the present foreign minister and leader of the National Alliance, Gianfranco Fini.

Mr Fini is certainly a man to watch. When he first joined Mr Berlusconi's government in 1994, he was only just emerging from the neo-fascist MSI party, which formed the basis of the National Alliance. He once declared that Mussolini had been the greatest statesman of the 20th century. But for the past ten years he has been increasingly distancing himself from this past, denouncing Mussolini, cultivating Israel and serving as a briskly efficient foreign minister. Along the way he has shed some of his harder-line supporters, including the Duce's grand-daughter, Alessandra, and cemented his position as the most popular leader of the centre-right.

The only political leader who is even more popular than Mr Fini is Walter Veltroni, an ex-Communist who served as culture minister under Mr Prodi in the 1990s and is now a successful mayor of Rome. When Mr Berlusconi and Mr Prodi eventually retire, Mr Fini and Mr Veltroni may be well set to take over as the next generation of political leaders.

One thing that Italy lacks is a truly liberal-minded party. The closest are Giorgio La Malfa's Republican Party, a tiny group that has thrown in its lot with the centre-right; and the Radical Party of Marco Pannella and Emma Bonino, which is not now represented in parliament. Mario Monti, at Bocconi University, caused a stir recently by questioning the ability of either coalition to implement reforms. Many saw this as a call for a new centre party, but Mr Monti seems to have no serious plans for one. More's the pity: Italy badly needs more believers in the free market.

Article forms part of a survey of Italy. It looks at the state of current Italian politics under Silvio Berlusconi.