Bill Emmott - International Author & Adviser

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Berlusconi´s legacy: 17 years of standing still
The Times - November 11th 2011

Nothing, as Shakespeare wrote in Macbeth, became him more than the manner of his leaving. Except that in Silvio Berlusconi’s case it should not be meant as a compliment. Italy’s prime minister waited to announce his resignation until long after everyone else knew that he had to go, scrawled “eight traitors” on his notes when a vote in Parliament finally showed he had lost his governing majority, and then still tried to buy time by saying he was going, but not quite yet. It was typical of the man.

            Yet finally he had met his match. Not Bunga-Bunga, not the “communist” magistrates who keep putting him on trial, nor even the centre-left opposition, but rather the organism that James Carville, Bill Clinton’s “ragin’ Cajun” adviser, said he wanted to be reincarnated as: the bond market.

 Even Italy’s great survivor, one of its richest men, armed with the considerable advantage of a near-monopoly on commercial television, three daily newspapers, a publishing empire and the country’s biggest advertising agency, could not beat a rise in his country’s borrowing costs to well past 7% and thus to the risk of bankruptcy.

            Financial crises should be welcomed by no one, but they generally concentrate the mind. In the case of Silvio Berlusconi and his coalition, the trouble was that their minds remained unfocused for too long. They had been arguing since August about measures to cut public spending and raise taxes, as well as about liberal reforms to try to encourage faster economic growth.

            Now, those still rather vague measures will be pushed through both houses of Parliament during the next couple of days, and by Monday work will have begun to form a new, caretaker government centred on Mario Monti, a former European commissioner and studiedly non-political economist who has been picked by the head of state, President Giorgio Napolitano, as the Italian likeliest to calm the bond markets, at least for a while.

            It will not be an easy task, but Mr Monti, probably working closely with a twice-former prime minister, Giuliano Amato, who helped guide Italy through its previous financial crisis in 1993, will at least begin with what Mr Berlusconi lacked: the sense that they actually believe in the need for austerity, the need for liberal reforms and even in the euro itself, rather than hoping to wriggle out of reform at any moment. The political parties that will have to support their “technocratic” government may do plenty of wriggling, which could again roil the markets, but at least the leading lights of the government will not.

            There is one, just one, sense in which it is possible to feel sorry for the way in which Mr Berlusconi has been brought down by the bond markets. It is that he was not responsible for building up Italy’s 1.9 trillion euros of public debt, which is equivalent to 120% of GDP and makes the country the world’s third largest sovereign debtor (after America and Japan) and the second in the eurozone (after Greece) in terms of the ratio of debt to GDP.

            The big spenders were Italian governments during the 1970s and 1980s that used welfare promises and public-sector employment to woo supporters and to calm down trade-union militancy and urban terrorism. Italy’s economic growth rate during the 1960s had been at Japanese-type near-double-digit levels, and it remained above the European average into the 1980s. But then labour laws, protectionism, a plethora of new regulations  and the weight of a budget deficit averaging almost 10% a year slowed the country down.

            Mr Berlusconi’s dramatic entry into politics in 1994 exploited a vacuum left by the collapse following a huge corruption scandal of the old political establishment, including his own mentor, the Socialist leader Bettino Craxi. He presented himself as a breath of fresh air, a beacon of hope, a self-made businessman who knew how to run things and would get the country moving again.

            After a wobbly start—his first government, in 1994, collapsed after barely a year—he really became dominant during his second spell as prime minister, in 2001-06, and then returned for his third spell through an electoral landslide in 2008. He has thus been in office, at the head of a centre-right coalition, for nine of the past 17 years, or eight of the past 11.

            It is in the light of that long period in office that all sympathy for his bond-market-induced downfall drains away. For what do you think Italy’s public debt to GDP ratio was in the year in which this breath of fresh air first entered office? Yes, it was exactly the same as it is today: 120%. And did the country get moving again, led by this entrepreneur? No: during the past decade Italy’s real GDP has grown by a mere 3%, while France’s grew by 12%.

            In 2001 Mr Berlusconi inherited public finances that had been improved during the late 1990s thanks to the (alas successful) effort to get into the euro, but proceeded to make them worse. Since 2008 his government has run a tighter fiscal policy, but still the debt ratio has climbed. And the biggest sin of all is that none of his governments have introduced liberal, structural reforms to try to boost enterprise and growth.

            There are three explanations for this failure, for this sin of omission. The first is that Mr Berlusconi’s campaigning style has essentially been the politics of pleasure: his aim has been to cheer people up, to make them optimistic like him, and to promise at every opportunity that he will not raise their taxes or take away their privileges, unlike those beastly opponents on the centre-left. This does not sit well with austerity or reform.

            The second explanation is that he is not really interested in economic policy. One of his finance ministers says that whenever there was a discussion about the economy, the prime minister would quickly leave the table and go and watch football on his TV. The third is that when his economic instincts do come to the fore, they are corporatist, statist ones: his governing method has been of handing our favours, of using laws and public money to reward supporters or intimidate opponents, of preserving as much state power as possible. He is no liberal.

            The question now, of course, is whether Italy can become liberal now that he has gone. Mario Monti is certainly a liberal, as he showed when he was Europe’s competition commissioner, and through a recent report he wrote for the European Commission about how to deepen the European Union’s single market. Italians, though, have learned from centuries of insecurity to cling fiercely on to whatever rights and protections they have. Austerity will be an easier sell, thanks to the sense of crisis, than will any form of Thatcherism. But in their calm, quiet, methodical ways, both Mr Monti and Mr Amato will have to try to spread the liberal gospel.

            A big mistake, which they may not make but plenty of others might, would be to assume that Mr Berlusconi is now going to disappear from the political scene. He has left office, reluctantly, and has been humiliated, both by the financial markets and by the contemptuous way in which he was treated by France’s Nicolas Sarkozy and Germany’s Angela Merkel at the most recent EU summit. But this is not a man who cares much about humiliation.

            He may well lie low, for a while, in one of his many villas. But he will be plotting his return, as will his long-standing ally, Umberto Bossi of the xenophobic Northern League. Both are in their 70s, and both now fare badly in the opinion polls. As a result, despite what they have been saying recently, neither is likely to press hard for early elections, preferring to wait until the caretaker government itself becomes unpopular. But equally, both men will probably believe, deep in their hearts, that their time could come again. We may not have seen the last of Silvio Berlusconi.               


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