Berlusconi Plans to Save Italy, Could Save Monti

The former prime minister wants to reclaim his office. He could end up rescuing his successor.

When Italian prime minister Silvio Berlusconi was forced to resign in November of last year, nearly all of Europe and certainly part of Italy sighed in relief. The media tycoon’s third and last tenure as premier had been marked by scandal and fiscal disorder. Former European commissioner Mario Monti was heralded as Italy’s savior. Now Berlusconi is planning a comeback.

As Italians are increasingly frustrated with Monti’s austerity efforts — which include pension and public-sector pay cuts as well as tax increases and an unpopular labor market liberalization — the septuagenarian but ever flamboyant Berlusconi promises them an easy way out: either Germany leaves the single currency area or Italy will. It will “not be the end of the world,” he says.

The man who would be king is not kidding. A master of populist politics, Berlusconi taps into mounting Italian apprehension about Germany’s intransigence to not let the European Central Bank finance Southern European deficit spending more freely. The central bankers in Frankfurt last year purchased hundreds of billions of euros worth of Italian and Spanish government debt which temporarily reduced market interests on their bonds. Berlusconi likes to try that experiment again. If the Germans won’t budge, Italy should simply leave the euro which would return to it control of monetary policy.

If Berlusconi is once again nominated for the prime ministership by his right-wing Il Popolo della Libertà, it would be the first mainstream conservative party in Europe to tout the possibility of a eurozone exit. In coalition with the separatist Lega Nord, which propped up Berlusconi’s previous three cabinets, and the Euroskeptic but leftist Five Star Movement newcomer, there could be a majority in Italian parliament for leaving the currency union.

The more likely scenario, writes Vincenzo Scarpetta for City AM, is that the left-wing Democratic Party, already the most popular in opinion polls, gains a majority and forms a coalition against Berlusconi. “This would break its tradition of seeking allies among the far left,” he admits, “whose ideological background is incompatible with many of the reforms initiated by Mario Monti’s technocratic cabinet.” Although he insists otherwise, Monti may be persuaded to head a reformist, left of center cabinet after the 2013. “Unlike with Berlusconi, many Italians would probably forgive him for the U-turn.”

Then again, voters seem less and less willing to swallow the medicine that he prescribes and Monti knows it. That is why is pleading with his European partners for more “growth” measures (increased European financing of Italian economic development) and “flexibility” on the part of the ECB (to allow Italy to bridge a prolonged period of reform on the central bank’s financing of debt).

Much work has yet to be done. The rigid labor laws that prevented Italian businesses from hiring and discouraged foreign companies from setting up shop in the country have been changed but are yet far from comparable to the more flexible labor conditions that pervade in more creditworthy euro countries.

Cronyism and corruption are still present. The Italian judiciary is more political than is the case in most of the rest of Europe, forcing companies to often settle out of court. Bribery and organized crime stifle growth in the largely agricultural south of the country, where a high degree of economic activity is also confined to the informal sector, holding back the more industrialized and industrious north. Hence the Lega Nord‘s popularity there.

Italy is a microcosm of the cultural divide in Europe between a north that perceives itself as hard-working and prudent and a south that feels subjected to a cruel experiment in austerity economics. If Monti is trying to move it in one direction, Berlusconi seems intent on taking it in another. Italians who favor reform would have little choice but to vote for the left if Il Cavaliere rides again.