Italy¡¯s mixed political fortunes: a look back and forward
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The document discusses Italy's political transition following Silvio Berlusconi's resignation, highlighting the appointment of Mario Monti as prime minister and his efforts to stabilize the economy with a technocratic government. While berlusconi's tenure had notable achievements in media and construction, his inability to improve the economy disappointed many Italians, despite recent successes. The new government faces challenges in labor market reforms, potential tax increases, and need for economic growth while grappling with the complexities of Italian legislative processes.
Italy¡¯s mixed political fortunes: a look back and forward
- 1. 1 Italy¡¯s mixed political fortunes: a look back ¨C and forward Vincenzina Santoro* November 30, 2011 ________________________________________________________________________ After the second longest-serving government in Italian postwar history gave up the ghost in early November 2011, there was swift agreement on the successor to Prime Minister Silvio Berlusconi. The designated nominee, Prof. Mario Monti, former President of Bocconi University (Italy¡¯s equivalent of the Harvard Business School) and ex-European Commissioner, quickly put together a top notch cabinet that was approved in record time. The street protesters¡¯ negative farewell to Prime Minister Berlusconi was applauded by the Anglo Saxon press from The Economist to the New York Times that has wallowed in the muddy waters of the Prime Minister¡¯s amorous dalliances ad nauseam. For Italians, the real disappointment with Prime Minister Berlusconi was that he was unable to transfer his successful business skills to the political arena and strengthen the economy as was expected by the electorate. Mr. Berlusconi had a number of key accomplishments in his business career. The son of a banker, he chose the entertainment world to initiate his career, and still writes many songs. In his media business he succeeded in breaking the monopoly of Italian state television and introduce private TV channels, a significant achievement. The RAI state-run system had consisted of three channels: RAI 1 for the Christian Democrats, RAI 2 for the Socialists and RAI 3 for the Communists. Each channel carried news and programs with their respective political hues and views. Mr. Berlusconi¡¯s company Mediaset introduced variety that was appreciated by viewers. Mr. Berlusconi was also a successful builder. His flagship real estate projects created much needed large-scale residential housing with pleasant landscaping in Milano Due and Milano Tre, built on the outskirts of the Italian fashion and finance capital. After Mr. Berlusconi¡¯s announcement to resign in early November, the foreign press dusted off old references to Italian political instability instead of acknowledging the period of stability attributable to Mr. Berlusconi. One Italian newspaper, La Repubblica, estimated that Mr. Berlusconi governed a record of 3,336 days with four governments. Second in line was Giulio Andreotti who ruled 2,279 days as head of seven governments. Mr. Berlusconi has been a major force in Italian politics since 1994, when he won his first election only to be toppled by his ally the Lega Nord a few months later. He is Italy¡¯s only postwar Prime Minister to serve out a full five-year term, from May 2001 to May 2006. His coalition narrowly missed re-election (votes cast were 49.74% versus 49.81% for the leftist coalition headed by Romano Prodi, a Bologna University Professor and a former President of the European Commission) due to the sort of antics which plagued Berlusconi¡¯s political career.
- 2. 2 The unwieldy nine-party Prodi coalition failed to reinvigorate the Italian economy and fell after two years. New elections were called in April 2008 and Mr. Berlusconi¡¯s coalition of Popolo della Libert¨¤ (which had combined Forza Italia, the party he founded, with the right-wing Alleanza Nazionale) and the Lega Nord was brought back to power with a significant majority and became the second longest serving postwar government. With Mr. Berlusconi gone, the Financial Times (November 12-13, 2011) pined and opined: ¡°Abroad the womanizing premier will be remembered, even missed, for his entertainment value.¡± Moreover, some Italian comedians, masquerading as journalists, have made plenty of money ridiculing Prime Minister Berlusconi for the benefit of foreign audiences. Beppe Severgnini, who blogs for the Corriere della Sera, recently presented in New York his latest book with the ungainly and pompous title: ¡°Mamma Mia! Berlusconi¡¯s Italy Explained for Posterity and Friends Abroad.¡± Its sordid cover is an affront to womanhood, art and culture. Would a Frenchman so deprecate his political leader overseas? The Economist magazine of November 12th had perhaps the most debauched cover ever, picturing a revolting sex orgy with Prime Minister Berlusconi adjusting his tie, as the British publication unleashed its deep seated antipathy to all things Italian. For years their numerous verbal thrashings have antagonized honest Italians everywhere. To paraphrase President Richard Nixon, the Anglo press won¡¯t have Berlusconi ¡°to kick around any more.¡± Hopefully, historians will be more objective, incisive and inclusive in judging developments over Mr. Berlusconi¡¯s entire career. The political negativism heaped upon Italy has been exceeded only by the pessimism of financial markets which sometimes ignore key fundamentals. Although the foreign press constantly refers to the country as ¡°peripheral,¡± Italy is a founding member of what is now the European Union, and is ipso facto a ¡°core¡± member. Italy¡¯s economy needs to be put into perspective too. Despite low growth, data for 2010 show that Italy remains the world¡¯s seventh largest economy (third in the Euro Area) with a gross domestic product of $2.1 trillion. It is the eighth largest exporter with goods sold abroad totaling $448 billion and is the 15th largest foreign investor globally. Italy¡¯s population of just over 60 million ranks as the 23rd largest in the world while its unemployment rate of 8.3% in September 2011 was lower than the Euro Area average of 10.2% and the United States rate of 9.1%. According to the OECD¡¯s latest compilation (2009), Italy¡¯s tax ratio of 43.5% of GDP was the third highest among the 33 developed member countries. Comparable ratios were 37% for Germany and only 24% for the United States. Yes, this means that the tax
- 3. 3 burden is very high and Italians pay more taxes proportionately than Germans or Americans.1 The much discussed Italian government deficit is projected by the IMF this year at 4% of GDP, less than half the 9.1% rate expected for the United States. Italy¡¯s government debt to GDP ratio of 121% for 2011 is half that of Japan. The United States has reached 100%. A simple but somehow overlooked calculation in the debt discussion indicates that Italy has had, and has successfully managed, a large government debt for many years. Despite the severity of the last international financial crisis, Italy¡¯s debt/GDP ratio increased the least among all the G-7 countries between 2005 and 2011, according to data compiled by the IMF. The biggest increase over this period was in the United Kingdom where the ratio jumped 92%, followed by a 62% increase for the United States. Meanwhile, Italy¡¯s debt/GDP ratio rose only 14%. Government debt to GDP ratio 2005 2011 % change United Kingdom 42.1 80.8 92 United States 61.7 100 62 France 66.7 86.8 30 Euro Area 70.3 88.6 26 Japan 191.6 233.1 22 Germany 68.5 82.6 21 Canada 71.6 84.1 17 Italy 105.9 121.1 14 Source: IMF, World Economic Outlook, September 2011, Table A.8 How should Italy proceed? There already has been a profound change in administration. The new Prime Minister, Prof. Mario Monti, chosen by the President after due political consultations, was sworn in November 16th and obtained swift Parliamentary approval from both chambers on the following two days. This government intends to stay in office until the end of the current legislature in the spring of 2013. A respected economist and former head of Bocconi University, Prof. Monti has earned credibility, competence, and authority. For example, as the European Union Competition Commissioner for two consecutive terms (2000 to 2010), he was rigorous in enforcing anti-trust legislation and is best remembered for a five-year investigation of Microsoft (and its billionaire President Bill Gates) over the company¡¯s computer operations in Europe. Monti prevailed. 1 OECD, Revenue Statistics 1965-2009: 2010 edition. http://www.oecd.org/document/35/0,3746,en_2649_34533_46661795_1_1_1_1,00.html and http://www.oecd.org/dataoecd/13/38/46721091.xls
- 4. 4 Prof. Monti has assembled a ¡°technocratic¡± government of highly qualified academics, recognized experts and a well regarded diplomat. Among the better known cabinet members is the Foreign Minister, Giulio Terzi di Sant¡¯Agata, who has been Ambassador to the United Nations and to the United States (Italian ambassadors are career diplomats, not political appointees.) and Corrado Passera, the CEO of Banca Intesa Sanpaolo, one of Italy¡¯s largest banks, who was named Minister of Economic Development and Infrastructure. Prof. Monti retained the all-important post of Finance Minister. Three women are heading the Ministries of Justice, Labor and Internal Affairs. All of them must now undertake herculean efforts to restore government finances, remove labor market rigidities and pursue policies to boost economic growth. They are expected to exercise authority with wisdom, prudence and, as Monti himself added in his acceptance speech to the Chamber, ¡°with humility.¡± The new government has been sworn in but Parliament, which must pass legislation, remains the same. The new government may be well qualified but has no political mandate ¨C a key consideration in a democracy. However, in all likelihood, legislation will be approved by a mixture of members of former parties in power and the opposition. More importantly, whatever measures and reforms are adopted must be executed and produce positive results. Despite the already high tax burden, more taxes are likely. A tax on primary residences may be reinstated. It had been abolished by the Berlusconi government. A wealth tax may be considered too. As Prime Minister Monti eloquently stated in the Chamber of Deputies, it is time for those who previously contributed the least to contribute more now. Among measures contemplated to reduce government spending, there may be an attempt to reduce the number of seats in Parliament. There are 630 members in the Chamber of Deputies for a population of 60 million, whereas the United States House of Representatives has 435 members for a population of 312 million, indicating that Italy has nearly 50% more deputies for a population that is one-fifth the US size. Pension reform is likely to be in the cards. Italy spends more on pensions ¨C 14% of GDP, than other OECD countries. Life expectancy in Italy is the second highest in the world after Japan. Recent changes, including the rise in the pensionable age to 67, do not go fully into effect until 2040 and the date needs to be brought forward. Pensions of legislators need to be reined in given that they are unduly generous. The new government must deal with rigidities in the labor market that make it difficult to hire and fire workers. Layoffs are virtually unknown and when they occur are very costly in terms of benefits payable to departing workers. The only flexibility employers have is hiring workers on fixed-term contracts and upon expiration determine whether to renew or not. This type of hiring has affected mostly younger workers entering the labor force and is having dire effects on society. Young people with an uncertain future earning capacity find it difficult to marry and start a family.
- 5. 5 Older workers, who tend to be employed by larger companies, are ¡°protected¡± regardless of company performance. A company has to go virtually bankrupt to let workers go. Moreover, worker contracts are negotiated between unions and industry representatives and apply to all companies on a sector by sector basis irrespective of any company¡¯s balance sheet conditions. At will employment and profit sharing, which are common in the United States, are alien concepts to the Italian labor scene. Nonetheless, the Italian entrepreneurial spirit remains strong, startups abound and young Italians who are successful sometimes turn abroad, especially to the United States, to find enough capital to expand operations. Given Italy¡¯s strong industrial base, its status as a world class exporter and financial acumen that dates back to the Lombards, an unshackled Italian economy could initiate another ¡°Risorgimento.¡± Italy has nearly five million small companies employing fewer than 10 people that in a freer market environment would leap at the opportunity to expand, hire and contribute to the country¡¯s economic growth. This would be a positive start for a new government and a fitting conclusion to 2011, the year commemorating the 150th anniversary of Italian unification. ____________________________ *Vincenzina Santoro is an international economist. She is a former Vice President of JPMorgan & Co., Inc