British, Germans Fear Italians to Return Berlusconi

German finance minister Wolfgang Schäuble confers with his Spanish and French counterparts Luis de Guindos Jurado and Pierre Moscovici during a meeting of eurozone finance ministers in Brussels, July 9, 2012

German finance minister Wolfgang Schäuble confers with his Spanish and French counterparts Luis de Guindos Jurado and Pierre Moscovici during a meeting of eurozone finance ministers in Brussels, July 9, 2012 (The Council of the European Union)

The German finance minister Wolfgang Schäuble was quoted on Friday as saying that Silvio Berlusconi’s return to the premiership would “weaken Italy and weaken all of Europe.” He added: “My advice to Italians is not to repeat the error already made and not to continue voting him.”

Even if a spokesman for Schäuble denied that he had said the exact words in an interview with the Italian L’Espresso magazine and his christian democrat party belongs to the same political family as Berlusconi’s right-wing Il Popolo della Libertà, the Germans much prefer a centrist or left-wing government in Rome that continues the reforms enacted by Prime Minister Mario Monti last year. “Bersani,” said Schäuble, referring to Italy’s leftist prime ministerial candidate, “told me he wants to continue on the path started by Monti and this is what is important for me.”

The Economist would also rather either Pier Luigi Bersani or Monti, if not both, rule Italy. Although the former is in alliance with the far left, which opposed many of Monti’s economic and fiscal reforms, “Bersani also has a reasonable record as a reformer in past governments,” according to the liberal British newspaper.

Deeper reforms are needed as Monti, who took over from Berlusconi in November 2011 when Italy seemed to teeter on the brink of sovereign bankruptcy, failed to thoroughly liberalize his country’s economy. Through tax increases and a raise in the pension age, the budget was put on a more sustainable trajectory but Monti’s program of economic modernization has been tepid.

Labor market reforms, which should have made it easier for firms to hire and fire workers, were initially delayed, then watered down under pressure from the nation’s powerful trade unions as well as Bersani’s Partito Democratico whose support Monti needed for his majority in parliament. The far-left Sinistra Ecologia Libertà, Bersani’s main ally, voted down the reforms altogether and has dismissed the possibility of ever forming a coalition that includes the incumbent premier as “fantasy politics.”

Monti similarly backpedaled on proposed drugstore and taxi market reforms. Thousands more pharmacies were supposed to be added but union opposition forced the government into retreat. Efforts to lift professional restrictions on attorneys were halfhearted. Minimum tariffs imposed under Berlusconi’s administration were abolished but in order to compensate lawyers, a maximum was set on the number that can be employed in the industry, making it even harder for law graduates to start a business.

Retailers have been the only real beneficiaries of the government’s reforms. Legally mandated shop hours and sales periods have been abolished, if to the chagrin of small businesses who fear that they will not be able to compete with chain stores.

Italy’s public debt remains among the highest in the world at nearly 130 percent of gross domestic product. Labor costs are also still high. Whereas in other Mediterranean countries, they have fallen since the start of the sovereign debt crisis, in Italy, wages have continued to climb.

The Economist warns, “If the eurozone’s third biggest economy and its largest public debtor cannot reignite growth and generate new jobs, Italians will eventually lose hope or their northern neighbors will lose patience.” Dutch, Finnish and German voters are increasingly frustrated about the seemingly lackluster pace of economic modernization in the south. If Italy fails to make progress in years to come, it is not difficult to imagine the electorates in the more competitive north of the single currency union simply giving up on the whole project.

Yet Berlusconi, who is in alliance with the separatist Lega Nord, has flourished in preelection polls as he intensified his criticisms of German austerity. In a television interview last month, he touted his willingness to stand up to German demands as prime minister. “I was one of the two, three most influential leaders in the European Council,” he said. “I continuously opposed German proposals and demands.”

He also urged the European Central Bank, chaired by the Italian Mario Draghi, to print more money so countries in the south of Europe can finance their deficits in the absence of private-sector funding. The Germans would be extremely apprehensive of such an activist monetary policy for fear of driving up inflation.

If the ultimate consequence of a disagreement over fiscal or monetary policy is Germany or Italy leaving the eurozone, Berlusconi said last summer that it would “not be the end of the world.”

In the last surveys released before a ban on election opinion polls came into effect last week, Berlusconi’s right-wing alliance was at 29.7 percent while Bersani’s left-wing parties were at 37.2. The centrist parties that support Monti’s reelection got nearly 13 percent of the votes in the ISPO poll. If neither the right nor the left secures an outright majority, Monti’s backers could be kingmakers, especially in the Senate where elections are not entirely proportional.