Italy’s Berlusconi Urges Coalition to “Revive Economy”

The two parties that will form Italy’s next government are tired of austerity.

Former Italian prime minister Silvio Berlusconi signaled on Friday that his country could have a new government as early as next week. “Certainly we cannot expect 100 percent agreement but I am very comfortable,” he said.

In an interview with Corriere della Sera newspaper, the septuagenarian leader of Italy’s right-wing bloc said he wouldn’t even consider the possibility that the left’s Enrico Letta, who was appointed by President Giorgio Napolitano on Wednesday to lead coalition talks, might fail. “We need a government,” said Berlusconi. “We must act to revive the economy.”

Italy’s economy contracted 2.4 percent through last year when unemployment rose to over 11 percent. Largely due to tax increases and pension reforms, the government’s deficit fell to 3 percent of gross domestic product but Italy’s public debt, equivalent to nearly 130 percent of annual economic output, is still among the highest in the developed world.

But both major parties that supported outgoing prime minister Mario Monti’s government have grown wary of its fiscal reform efforts.

Berlusconi’s conservatives seek the repeal of an unpopular housing tax that Monti introduced which would blow an €8 billion hole in this year’s budget. The left may want to further water down some of his labor market reforms that were opposed by country’s powerful trade unions.

Berlusconi, who was forced to resign in late 2011 when Italy appeared to teeter on the brink of sovereign bankruptcy, campaigned loudly against “German” austerity in the last election and told Corriere della Sera on Friday that the 3 percent deficit limit, enshrined in the European Union’s fiscal treaty, was “unsustainable. In Europe,” he added, “it seems to me this awareness is growing.”

European Commission president José Manuel Barroso admitted on Monday that austerity had “reached its limits,” given popular outrage over deficit reduction measures in especially in the south of Europe. France, the eurozone’s second largest economy, as well as Spain and the Netherlands, the fourth and fifth largest after Italy, have delayed plans to bring their deficits under 3 percent of gross domestic product until next year.

Letta, formerly the social democrats’ party secretary, said on Friday that his government’s priority will be to provide an “immediate answer to the economic and social crisis.” Some relaxation in Italy’s austerity program is politically inevitable but Letta is also seen as pro-European and unlikely to test the patience of Northern Europeans who fear that reform efforts in the periphery will stall.

Electoral reform, demanded by Napolitano upon his reelection last week, should be Letta’s second most important objective. He admitted on Wednesday that Italian politics had “lost all credibility” after eight weeks of partisan bickering followed an inconclusive election in February. Likely changes in the voting laws would rob party bosses of their power to fill seats in parliament and reduce the chance of a divided legislature emerging from national elections.

The Economist argued on Saturday that after such changes are enacted, Letta ought to resign and give Italians the chance of voting in new and younger leaders who can challenge Beppe Grillo’s anti-establishment Five Star Movement.

The British newspaper recognized that Letta’s administration, which is expected to draw in both politicians and technocrats, is unlikely to address Italians’ desire for change. But Grillo’s movement, which got a quarter of the votes earlier this year, is no alternative. “His refusal to help elect a president or to support any coalition government, and his attacks on the concept of representative democracy, suggest he is not the answer for those who want the political and economic reforms that Italy needs.”

The Five Star Movement and far-left Sinistra Ecologia Libertà, which backed Letta’s party in the last election but now seeks a “new path” for the left, will go in opposition. The separatist Lega Nord, Berlusconi’s right-wing ally, hadn’t decided whether to back the new coalition as of Saturday morning.