In English
Fiddling in Rome
In less than three months, Italy has changed from a country whose fiscal and economic ailments are difficult but not impossible to cure into a country whose atrophied and self-serving political system threatens to destroy the eurozone.
For this alarming state of affairs there are various culprits: lawyers, notaries and other interest groups who refuse to open up their professions to competition; trade union leaders who would rather call a strike than co-operate in reforming labour markets; wealthy Italians who specialise in tax evasion; and everyone who connives at organised crime. However the principal responsibility lies with Silvio Berlusconi, the Nero-like prime minister who fiddles while Rome burns, and with his dysfunctional centre-right coalition.
If, in July, the government had committed itself to a bold combination of public expenditure controls and growth-enhancing structural reforms, it is conceivable that Italy would have avoided being sucked into the centre of the eurozone’s debt crisis. Instead the transparent disagreements in Mr Berlusconi’s coalition over what to do contributed to a surge in Italian government bond yields. The European Central Bank felt obliged to step into the secondary market and buy Italian debt to prevent a catastrophe. Now, short of letting Italy’s bond yields return to the critical levels of early August, the ECB is in the uncomfortable position of lacking virtually all means to put pressure on Mr Berlusconi to fulfil his promises of economic reform.
Structural measures, such as the liberalisation of local public services, privatisation of state entities and more labour market flexibility, are glaringly absent from the fiscal consolidation plan approved last week by Italy’s parliament. The plan is too heavy on tax increases and too light on spending cuts. Italy’s high taxes and social security costs are one reason why its international business competitiveness is so poor. The plan will aggravate this problem and, worse still, stifle the growth that is essential to the stability of Italy’s economy and financial system.
In almost 18 years as a politician Mr Berlusconi has squandered numerous opportunities to lift Italy’s economic performance. Unfortunately, the centre-left opposition is no more credible an exponent of reform. At a time when the eurozone’s future hangs in the balance, an early election may not be in Italy’s best interests. But Italy has very little time to lose. The longer Mr Berlusconi’s irresolute leadership continues, the more obvious it is that he must go.