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Exit the technocrat, enter the populist? Europe braces for next act in Italian drama

Italy is in an economic and political mess, with or without the leadership of Mario Monti (pictured), who announced his resignation this week. AAP

For a little longer than a year, the “technical” government of Mario Monti was supported by a vast and heterogeneous coalition: the centre-right People of Freedom Party of Silvio Berlusconi (PDL), the centre-left Democratic Party headed by Pier Luigi Bersani (PD), and the centrist Christian Democratic party of Pierferdinando Casini (UDC).

Then, last week, Silvio Berlusconi told the press he would run for office again in 2013. This announcement spurred a plethora of adverse reactions from various political leaders, as well as senior members of Monti’s cabinet. As a result, the PDL declared it would stop supporting the technical government.

Even if not formally voted out of office, last Friday Monti met with the President of the Republic, Giorgio Napolitano – a key sponsor of the technical government – and announced his intention to resign after the approval of the 2013 budget and stability law currently under discussion in the Parliament. General elections would thus be held some time in February 2013. Incidentally, this is just a month or two earlier than the natural conclusion of the legislature.

When the markets opened on Monday 10 December, their response to the collapse of Monti’s government was unequivocally negative. The stock exchange initially dropped by 4%, eventually rebounding and closing the day at – 2.2%, while the spread between the Italian and the German 10-year bonds increased from 3.2% to 3.5%.

This chain of events seems to suggest that Berlusconi is willing to bring Italy to bankruptcy in order to carry out short-term political revenge. As the downfall of Italy would probably trigger the breakdown of the monetary union, Berlusconi’s comeback could really be the beginning of the end.

A quick look at the front page of most newspapers confirms that this is indeed the prevailing opinion in Europe: political leaders and commentators invariably sing Monti’s praises while warning voters and readers against the risk of a return of Berlusconi.

However, Berlusconi should not be the only reason of concern.

Monti: is the international praise deserved?

Monti became Prime Minister amid the financial turmoil of November 2011, when Berlusconi no longer had the numbers in the parliament nor the international credibility to face the crisis.

With his strong international reputation and non-political background, Monti seemed to be the ideal candidate to head a government whose task was to take Italy out of the tunnel. But, if this was the mission, then we cannot say it was accomplished.

In 2012, Italy has plummeted into a recession, with a record negative GDP growth rate of -2.3%. Unemployment has increased to 10.5% from 8.4% in 2011. The net loss of jobs in the past twelve months amounts to more than 300,000 units. In spite of the increase in government revenue, the debt to GDP ratio in the course of 2012 has further increased by six percentage points to 126%.

Certainly, it is not Monti’s government that caused the recession and, by 2014, Italy might even return to feeble positive growth. But it is still hard to think of Monti as a saviour whose departure will precipitate Italy into ruins. In a sense, Italy is already in ruins.

Or, to be less dramatic, what Monti has done in the last year has been to increase taxes, which perhaps helped reduce the spread, but which did not stop the real economy from plunging. Maybe without Monti, things would have been even worse. But this is meagre consolation when average per-capita income has declined by 700 euros in a year, youth unemployment has reached a 24-year-high in October 2012 (35%), and over a quarter of Italians are estimated to be at risk of poverty or social exclusion.

Blame Berlusconi — and all the others

The return of Berlusconi is feared because many see him as the origin of the Italian crisis. In fact, this is a misleading simplification. Certainly, having governed for almost nine years since 2001, Berlusconi must bear some of the blame for the current state of the Italian economy. But he is not the only one to be blamed.

The crisis of Italy stems from fiscal profligacy and lack of economic growth. Both phenomena pre-date Berlusconi. Large fiscal deficits and debt accumulation go back to the early ‘80s, when the coalition governments built around the Christian Democratic Party started using fiscal expenditure as a tool of political patronage.

Growth has been stagnant for at least two decades, and for 10 years in the last 20, Berlusconi was at the opposition (or he had not even entered the political arena yet), with the centre-left being at the helm.

The fact is that none of the Italian governments that have been in office since the early 1990s have done much to redress the structural weaknesses and overcome the bottlenecks that constrain productivity growth and hinder Italian competitiveness in international markets.

Italy’s economic problems are not linked to just one particular party or government. They are systemic and will persist, no matter whether Berlusconi comes back or not.

Plenty of other reasons to be worried

The chances that Berlusconi will actually gain office at the next elections are very slim. Before the announcement that he would run again, opinion polls placed Berlusconi’s party well below the Democratic Party.

Certainly, with Berlusconi as its leader, the PDL might hope to gather a few more votes. But Berlusconi is no longer the charismatic figure who entered politics in 1994 or the leader who won the elections in 2001 and 2008. His appeal to the moderate electorate has been considerably reduced by the sex scandals in which he was involved. Overall, several political commentators believe that the best he can do at the next elections is to limit the magnitude of the defeat.

It is not Berlusconi who should be feared at this stage. Beyond Berlusconi, there is no shortage of leaders in Italy whose populist recipes are far more worrying than Berlusconi’s unlikely comeback.

The emerging Five Star movement of the former comedian Beppe Grillo, for instance, is attracting support with its anti-politics stance, internet-based primaries, and fierce exposure of the many mistakes made by the political class. Still, more than that is needed to make it fit to rule the country.

The desirable scenario for Italy now is a general election that will lead to the formation of a credible political government, capable of undertaking the reforms and expenditure cuts that Monti did not achieve, and willing to work with European partners towards a solution of the crisis in the region.

There is a strong likelihood that this scenario will not occur, and it is not the fault of a potential Berlusconi comeback. European partners are right to be concerned about the political destiny of Italy, but perhaps this time they have directed their concern towards the wrong target.

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