Say No to Berlusconi

Mario Monti, Italian Prime Minister since Nov. 2011

Mario Monti, Italian Prime Minister since Nov. 2011

Mario Monti announced he was resigning from the office of Prime Minister of Italy despite a heroic year in which the Italians did what most people thought couldn’t be done.  He stabilized their finances and help brighten the outlook for the EU and Euro in the on going financial crisis caused by southern European lacking fiscal discipline.

Monti’s resignation, which will become official after the 2013 budget is passed, came as a surprise, sending shock waves through financial markets and the Italian political system.  This sets the stage for a critical election in February.

When Monti came into office interest rates for Italian bonds were above 7%, and Italy’s budget deficit was growing quickly.   Monti has managed to lower rates to 4.4% (meaning borrowing money is cheaper), though on news of his resignation it shot up to 4.8%    Total debt has stabilized at 125% of GDP.   Monti’s reforms  included budget cuts, reform of the labor market and other policies not always popular with the public.   As it became clear that Italians had the political will to deal directly with their problems, confidence in both the Italian economy and the Eurozone grew.

So why is Monti resigning?   Monti’s government is a ‘government of experts’ designed to make pragmatic decisions with as little politicization as possible.    Back in November 2011 Silvio Berlusconi resigned as Prime Minister after losing his majority, with international markets showing no confidence in Italy’s policies or leadership.   Monti was chosen as a technocratic leader both left and right could agree on, but one without a political mandate.

On Thursday December 6 Berlusconi withdrew his party’s support from Monti’s government.  Monti had always said that without broad political support a technocratic government was untenable.     But this sets up a potential showdown.

Silvio Berlusconi, one of the worst leaders in post-war European history

Silvio Berlusconi, one of the worst leaders in post-war European history

In my opinion, Berlusconi has been a disaster for Italy.   First elected Prime Minister in 1994 in the wake of the collapse of the Italian first Republic and the party system that defined it, Berlusconi promised to chart a new course for the country.  He said his party Forza Italia (forward, Italy!) would make Italy a modern well governed state, absent the corruption and undisciplined economic policies of the old system.    Despite being Prime Minister three times — from 1994 – 1995, 2001 -06, and 2008-11, he has not followed through.

In fact, Italy’s performed best when Berlusconi was not in office, including the job Romano Prodi did on economic policy in the late 90s to get Italy into the Eurozone.   As Prime Minister Berlusconi mirrored the corruption of the first republic (he was convicted of fraud in October — he’s out free as he appeals, but that’s just the tip of the iceberg of his questionable and likely illegal actions), and the Italian budget mushroomed.

Unfortunately the Italians may vote him back into office.   He claims he wants to stand again, and as media mogul he has the capacity to shape the narrative of the short election campaign.   Despite his faults, his personality and appeal to conservatives means he’ll win a lot of votes.

Pier Luigi Bersani, who will represent the center left in Italy's election

Pier Luigi Bersani, who will represent the center left in Italy’s election

Ironically global markets would be happier if a former Communist, Pier Luigi Bersani, were to defeat Berlusconi.   Bersani’s center-left coalition has pledged support for Italy’s commitments and vowed not to go back to the kind of politics and spending of recent years.   Berlusconi, however, has been skeptical of Italy’s commitments and has hinted that he wants to increase spending and undermine the work done last year by Monti.

Of course, Monti might himself run.   He could hope to get support from centrists and moderates who want to transcend the polarized politics of the left vs. right, and reward Monti for the work he’s done the last year.    Monti would not have the backing of a major party organization, but Italian campaigns are short, intense, and not that expensive.

A Monti victory would not only keep him in office, but give him something he now lacks – a political mandate.   A technocratic party is supposed to avoid political controversy.    When Monti pushed through labor law reforms, he met considerable opposition from Italy’s strong labor unions.   Rather than picking a fight he negotiated with them and a compromise set of laws passed.    With a political mandate, Monti’s hand in such negotiations would be stronger, though it’s unlikely he’d seek political confrontation.

The Italian parliament

The Italian parliament

This election is important for both Italy and the EU.  If Monti were to win, there would be an enthusiastic response from markets and renewed optimism that the worst of the Euro crisis is passed.  If Berlusconi were to return, Italian bond yields would rise and both Italy and the EU could be thrown back into a deep crisis.   Moreover, Italy’s path out of a flawed and corrupt system of governance would be halted; Berlusconi represents precisely what Italians must reject.

Signs are good that Berlusconi’s shine has worn off.   He’s down in the polls, and even he wanted more time to prepare for the next election.   His fraud conviction and his record as Prime Minister overshadows his media appeal and charisma.  By hanging on he deprives Italian conservatives of a viable alternative.    When markets prefer a former Communist to a successful capitalist businessman, that says something!

Still, Berlusconi has had a remarkable capacity to come back and no one should underestimate his Machiavellian political skills.    His return to power would be a disaster for Europe and Italy.

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  1. #1 by lbwoodgate on December 11, 2012 - 7:53 am

    I feel pretty confident that had Romney won here last month his government would have looked a lot like what Berlusconi’s did in the past.

    • #2 by thalesomiletus on December 16, 2012 - 2:43 pm

      It already does thanks to Obama. Romney’s centrist technocratic approach would have improved the economy via fiscal and regulatory discipline. It would also have been a win for the Democrats by moving the GOP even further left. Instead, they re-elected Obama’s failures for purely ideological reasons.

      • #3 by Scott Erb on December 17, 2012 - 1:29 am

        I don’t think Romney is like Berlusconi. But I don’t think he’d have been good for the economy. I think President Obama is a transformational President who will be remembered as one of the great ones. I can’t see any way to see Obama as having failed. I think the GOP has to change in any event – their positions are out of touch with average Republican voters and demography is working against them. The tea party wanted to bring back the 80s. But it’s a new era.

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