By David Marsh
Commentary: Italy and its prime minister are in the firing line now
It has not been a good week for media moguls — especially those who happen to be prime minister as well. Like most European banks, Silvio Berlusconi narrowly passed his own stress test on Friday when Italy’s latest austerity plan passed a key parliamentary hurdle. But the inexorable rise in Italian bond yields over German levels shows how the Berlusconi system of government seems to be unraveling –— underlining how this most Roman of idols may turn out to have feet of clay.
Italian prime minister for nine of the last 17 years in three spells, Berlusconi — unlike others in the media world who prefer to exert political influence from the boardroom — has added the trappings of high office to his collection of powerful corporations and alluring connections in television, newspapers, publishing, cinema, banking, insurance and football.
Before his latest period as prime minister started three years ago, Berlusconi frequently sniped at monetary union from the sidelines, earning the public disdain of Jean-Claude Trichet, the European Central Bank president, for criticizing the central bank’s interest-rate policies.
But since the financial crisis broke in 2008, sparking off concerted international credit easing, Berlusconi has been on his best euro behavior, helping Italy ride out the capital market storms and leaving the brunt of monetary union wobbles to be borne by the smaller peripheral countries. It was this period of relative calm that helped forge a gradual European consensus that Mario Draghi, the highly esteemed (though not by Berlusconi) governor of the Banca d’Italia, was the best candidate to take over from Trichet when the latter retires in October.
Now that the ECB has started raising interest rates again, Italy — with a largely stagnant, uncompetitive economy and a public debt to GDP ratio of 120% — is back in the firing line.
Berlusconi has shown no great interest in backing the package of tax increases and spending cuts assembled by Giulio Tremonti, his finance minister. In an exceptionally wayward piece of political theatre, the prime minister held up the austerity package by seeking to insert a measure that would have allowed company he owned to defer a €560 million fine.
The prime minister’s contempt for what would rank in other countries as due political process is already well known. Still more damaging for the plan to bring in balanced Italian budgets by 2014 are Tremonti’s new troubles caused by his own set of corruption allegations against him.
Meanwhile, the Italian finance minister has lost none of his penchant for plain speaking. Last week he voiced out loud what many other European ministers are saying sotto voce — that Germany, the most powerful country in monetary union, is placing its own interests a great deal higher than those of its neighbors.
Chancellor Angela Merkel, visiting Africa last week, has stoically refused to budge from her standard position that outer countries must put their house in order. Appearing to compare the Germans with luxury-service passengers on board a doomed ocean liner, Tremonti said Europe faced “an appointment with density …. Just as on the Titanic, not even first-class passengers can save themselves.”
Overt tension between Germany and Italy could accelerate Berlusconi’s fall from grace. If the Germans are vexed by Greek financial malpractice, they are much more infuriated by what appears to be still more visible machinations in Italy. Berlusconi’s hold has been increasingly undermined by a constant drip of revelations about his medieval mix of political, personal and commercial interests.
Like other media magnates, Berlusconi has benefited from decades of internationalization and deregulation to gain reputation, wealth and power. But these same factors, encapsulated in the inexorable force of the international capital markets, also have the capacity to cut larger-than-life characters down to size.
When integrity and straight-dealing manifestly crumble, the financial markets have a habit of passing remorseless judgment on figures who have outgrown credibility and usefulness.
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