IS ITALY ON THE BRINK OF DEBACLE?

(Published in “Open Democracy” on July 19 2011)


In the course of the past few weeks there was growing, ever more insistent speculation both in Italy and abroad as to whether the “Greek contagion” would end up hitting the Italian financial markets. The official reaction was to minimize the danger and to concentrate attention on the Government’s (and Parliament’s) efforts to approve an exceptionally severe austerity budget, designed to bring the country back from the brink of insolvency. While fierce debate was taking place within Italy’s governing majority on the austerity measures insistently demanded by the International community, the issue suddenly became urgent, as the Italian financial market was hit by a deep crisis which appeared likely to drag the country through a maelstrom of failures and insolvency.

In a remarkable, even surprising change of pace, at the end of the week both Houses of the Italian Parliament passed the most controversial budget law in the country’s history, with austerity measures valued at about seventy billion Euros. The main Opposition parties, still weakened and smarting from the recent electoral and referendum results, had no choice in the matter and adhered to the urgent request by the President of the Republic to abstain from obstructionist measures and to allow this most unpopular law, already defined as “brutal”, to pass speedily.

The dangers facing economic and financial markets in much of the world, and not only in Italy, have been and are being analysed with great competence, delineating an uncertain and potentially bleak future. In Italy the picture is further complicated by growing political chaos which could well reveal itself as a watershed in the short history of the Italian Republic with effects much deeper and graver than a traditional “Government crisis”..

Prime Minister Silvio Berlusconi, after more than a week of uncustomary absence from the public scene, was present in the Lower House at the second parliamentary vote, but was extremely reticent, reserving a few remarks for a small, selected number of politicians and journalists. Berlusconi's silence is a new element in the Italian political scene, and has been much commented on.

It was on the disappearance of Silver Blaze, a champion race-horse, that Sherlock Holmes commented on the “strange behaviour of the dog in the night”. The dog, of course, had done nothing, and that had seemed strange to the great detective. The expression comes to mind in considering the long silence held by Berlusconi, normally a loquacious, indeed, garrulous personality not usually associated with the term “low profile”, especially in moments of political turmoil.. He has, nonetheless, made himself virtually invisible, his few comments doled out in laconic notes emanating from his office in Palazzo Chigi.

There are many possible explanations to Berlusconi’s silence, some connected to his personal vicissitudes which recently took a turn for the worse, but principally in the light of the fact that he is the ultimate populist and cannot bring himself to announce bad news unless it can be blamed on someone else. And, in spite of the apparent respite, with which Government spin doctors are trying to cope, brought about by the last minute approval of this incredibly severe, and perhaps not fully thought out packet of “austerity measures”, there has been plenty of bad news in Italy, with quite a bit more expected to come and all this with potentially uncertain and unpredictable consequences.

There already was, as customary in Italy, and more than ever in these days of looming political crisis, a feeling that things were falling apart, with, for example, the Government’s most influential member, the Minister of Economy, Giulio Tremonti, audibly and publicly calling one of his colleagues a “cretin” in the midst of a joint press conference, or the Prime Minister complaining to the opposition press that Tremonti himself was impossible to work with because he considered himself “the only intelligent member of the Government”

In today’s Italy, however, all this scarcely raised eyebrows, the Opposition’s principal complaint being that the most unpopular and painful measures envisaged in the proposed budget – which rose, in the course of a few days, from about 30 to about 70 billion Euros - were to take effect after 2013, leaving the difficult task of their fulfilment to the next Government.

Then came the violent attack on the Italian financial system (days unimaginatively called “Black Friday” and “Black Monday”) and all the dangers which had seemed safely distant suddenly became tangible and apparently imminent, forcing the Government’s hand and obliging the Opposition parties to swallow the bitter pill and allow the measures to be approved, albeit with their contrary vote.

A number of fundamental questions need to be addressed in any coherent attempt either to understand the current situation or to surmise what the near future holds in store.

The austerity packet has been subject to fierce, and somewhat justified criticism. Without examining the provisions in detail, some fundamentally negative, and perhaps even dangerous aspects emerge. The measures will be felt primarily by the lower middle-class, already tested by the ever growing divide between rich and poor in Italy. A greatly reduced spending capacity will diminish consumption and therefore risks slowing down the faltering economy, also in view of the fact that the package contains no credible stimuli to encourage production.

The fundamental question, however, rests in the doubt whether the current Italian Government, divided as it is, and with its extremely poor record in economic matters, will have the strength, the stamina, or indeed the political will to carry out measures which will certainly diminish its already shaky popularity. The omens are not encouraging, and the general political outlook is extremely bleak, well beyond the sense of panic caused by the economic and financial problems which beset the country.

The most recent events seem to show that the International financial apparatus is far from convinced by the validity of Italy’s austerity measures, and the pressure on the economy seems to continue unabated, while the confusion and the divisions in the governing majority appear, by now, to be totally out of control, with the normally hyperactive Berlusconi giving the impression of having become a spent force. In normal circumstances a Government caught in such a quandary would have no choice except to hand in its resignation, leaving the path open either for the calling of elections or to the formation of a new government, possibly headed by a personality not involved in the current political turmoil and with the task of bringing about the necessary amendments to the austerity packet and to attempt to last out the two years remaining in the current legislature.

At this moment neither of these solutions seems probable, and the country appears headed toward an extremely uncertain future, with popular discontent growing and mistrust of the political leadership – both in the majority and in the Opposition – having reached levels unprecedented even in Italy. Further blows to the financial market could possibly force a solution, and there are some signs, especially, but not only, in the opposition, that the formation of a “technical” government could be in the offing, but it would be unwise to display excessive optimism on the matter.

Carlo Ungaro
Rome, July 19 2011