Friday, July 09, 2004

The end of Berlusconi?

It’s exam time for anyone who has to comment on Italian politics; the question I have been asked this last week is “is Berlusconi’s government going to fall?” His faithful economics minister, Giulio Tremonti, was forced to resign last week and there have been loud and ominous creaking noises coming from the coalition structure.

The easy answer is that the Prime Minister is in trouble but he is very far from being on the ropes. The question for the exam is: Will Mr. Berlusconi’s government end: a) on 16 July when the leaders of Marco Follini’s centrist UDC meet and withdraw their support? b) in the autumn when the budget planning document (the DPEF) and the budget itself have been published and enough members of the coalition realise the the figures do not add up to political reality to withdraw their support? c) next spring because no one in the coalition dares pull the house down sooner but they can drag the crisis out for another nine or ten months to make the collapse look like an (almost) natural occurrence? And d) Silvio Berlusconi serves out his full five year mandate and stands for re-election in spring 2006.

This is not just the idle chatter of political scientists and journalists during the summer vacation. Standard & Poor’s has already lowered Italy’s credit rating as if to say that even if the European Commission is prepared to give Mr. Berlusconi’s promises to keep his budget deficit under 3% of the GDP, they are less trusting. “Fidarsi è bene” as the Italians say, “ma non fidarsi è meglio” says Standard & Poor’s.

More than the credit rating, there are possible serious consequences on Italy’s relationship with the EU if she does not keep to euro standards; to Italian state owned businesses like Alitalia and the state broadcaster, RAI, if the government really does apply market economy standards across the board; and to any Italian who depends on the welfare state in some way if Mr. Berlusconi really does impose tax and spending cuts.

Not to mention Mr. Berlusconi’s conflict of interest which has grown by leaps and bounds this week as by becoming Minister for the Economy, he has taken on direct responsibility for the RAI, the direct competitor of his own Mediaset.

The story and the options changed over the week too; first the Prime Minister was going to keep the economy portfolio just for a few days (with the near presumption that much respected European Commissioner Mario Monti would take over – Monti politely said “thanks but no thanks” to the poisoned chalice). Then Mr. Berlusconi said that he would stay in the Ministry for some months “until the reforms are through”. The dissidents in the coalition said he should not stay for more than a week. So now the likelihood is for a summer holding operation.

The reasons for all this action are the fundamental ones in politics – power and policy. The policy is the proposed cut in income tax, one of the items on Mr. Berlusconi’s “contract with the Italians”, his five point election manifesto. He has been talking more and more about the cuts since the beginning of the year much to the nervousness of the Alleanza Nazionale and UDC leaders, Gianfranco Fini and Marco Follini.

These two know that Mr. Micawber was right and that in order to balance your books (which Italy must do so as not to get into trouble with the European Commission), if you reduce income, you must reduce expenditure. And they do not want to cut spending on welfare or investment in the South.

As for power, both men have been very docile and cooperative during their three years in power. There are two elements to the present change, short term and long term; in last month’s European elections their parties increased their relative weight in the governing coalition, particularly the UDC and so Mr. Follini feels that he should have more positions in government. If anything was ever conclusive in Italian politics, then the present spat should close the manoeuvres or verifica which started at the beginning of the year in order re-calibrate the relative power of the coalition members. If the government holds, we are very likely to see more UDC people in ministries.

The more longterm motive for unseating Tremonti is the fight for Berlusconi succession and here the sparring has just begun with the main contenders being Fini himself on one side and some sort of reinvented Christian Democracy on the other.

So at the end of the week, which option do I go for? Despite much huffing and puffing, Follini is unlikely to do anything drastic next week and though there have been summer crises in the past, they are improbable as most Italian politicians are thinking more of beaches than the corridors of power. Crunch time will come when the budget is examined and all of us from the European Commission to the Italian voter will see if and how the tax cuts will materialise. Even this will not mean a government crisis but certainly the possibility has come much closer leading to a new Berlusconi-led government.

Elections are still a long way off but the end of Silvio Berlusconi’s second government is much closer.

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