Italy needs reform

Italy needs reform

Published: April 7 2008 18:57 | Last updated: April 7 2008 18:57

Dismaying though it is that Italy this weekend faces yet another general election, the prospect that it will return an ineffectual government headed by Silvio Berlusconi, and staffed by the same, unredeemable caste of politicians that consistently ducks the challenges the country can no longer afford to evade, is profoundly depressing.

The outgoing centre-left coalition of Romano Prodi, in power less than two years, had made modest progress – especially in improving Italy’s disastrous public finances – as it lurched from one crisis to another. Nothing in the previous record of Mr Berlusconi suggests this crab-like advance will continue.

Italy had a priceless chance to renew itself politically when the Tangentopoli investigations by activist magistrates began unknotting the interests of businessmen, politicians and mafiosi; and a golden opportunity to re-engineer its economy, after swapping the lira for the euro sharply reduced its borrowing costs. It did neither.

Few among the political class can escape blame for this. But the five wasted years of 2001-06 under Mr Berlusconi, a vainglorious populist who came into politics seemingly to dodge the courts and protect his business interests, stand out – especially now it looks as though they are about to be repeated.

Walter Veltroni, the former mayor of Rome leading the centre-left’s challenge, has expressed some resolve to continue reform, for instance by slashing the thicket of laws that stifle enterprise.

But the loose spending promises from both sides ignore the realities of Italy’s low (and falling) growth, vast public debt and declining economic competitiveness. Mr Berlusconi’s unfunded public spending promises are particularly demagogic – about three times Mr Veltroni’s, according to one study – while the parties of the right appear to see saving Alitalia, the terminally loss-making flag carrier, as the main national imperative.

All this could be dismissed as the rhetorical froth of electioneering, were it not that the last Berlusconi administration saddled Italy with an electoral system that guarantees fragmented coalitions bickering over sectional interests. That will almost certainly remain true in spite of recent political mergers on both the right and the left.

Italy is in relative decline. It is sinking under a bloated public sector, over-regulation and crumbling infrastructure. Its traditional comparative advantage in manufacturing is being sorely tested. It needs determined structural reform of the economy and political renewal. It does not look like it will get them.