Friday, April 07, 2006

Italian Election: The Bad vs The Bad

On Sunday and Monday, Italy will hold a general election. The left-wing opposition led by former EU president Romano Prodi holds a slight lead in the polls over the right-wing governing coalition led by Silvio Berlusconi, but given that the margin is so small, both blocs stand a realistic chance to win.

The sad thing however is that regardless of whether Berlusconi or Prodi wins, Iitaly will lose as both alternatives are appalingly unattractive. Not that this is unique to Italy of course. In the latest U.S. presidential election, both candidates, Bush and Kerry were highly unattractive. The same thing was also true in the latest German election.

Berlusconi and his party Forza Italia are in policy terms the lesser evil in Italian politics but (as the last few years have showed) he have little possibility of implementing the modest free market reforms he advocates because he governs with the help of Alleanza National and the Christian Democrats who -in sharp contrast to the third coalition partner, the erratic populist and separatist Northern League- likes big government in general and the vast subsidies to the poorer southern parts of Italy. Berlusconi might also have to rely on the support of self-described fascist Alessandra Mussolini, the grand-daughter of fascist dictator Benito Mussolini.

Berlusconi also have a habit of coming with strange statements, such as when he denied that [Benito] Mussolini ever killed anyone, his reference to a German member of the European parlament as a Nazi concentration camp guard or his latest statements of how the Chinese used to boil babies under Mao.

Romano Prodi on the other hand is a typical statist bureacrat, who is even less likely to implement any of the reforms Italy needs because he is for one thing even more statist than Berlusconi and also because he relies on communist support, something which will make it nearly impossible for him to implement free market reforms.

In short, the one thing certain about the Italian election is that the outcome will be bad for Italy and the rest of the world. Italy whose economy have been Europe's worst performing in recent years is in great need of radical reform. Yet Berlusconi denies that any problems exists and to the extent he occasionally acknowledges them he blames them on the euro. Just how the latter factor could explain that Italy have performed so much worse than the other euro zone economies, not least the other big Southern European country Spain is not clear. Prodi for his part tries to blame the problems on Berlusconi, but this is only true to the extent that Berlusconi have not
implemented reforms radical enough. The basic problems cannot however be blamed on Berlusconi.

Instead of being the result of the euro or Berlusconi, Italy's problem have three basic causes. One is the high regulatory burden, which is even worse than in the rest of Europe. Two is the old and rapidly aging population. Italy have the world's highest median age after Japan, but the problems from this are much greater than in Japan as Italians in general retire much earlier than the Japanese. And three is the fact that Italy have had the bad luck of having a similar export structure as super-competitive China, which have reduced Italian exports.

To overcome these problems, Italy must raise the retirement age dramatically and liberalize the economy. Berlusconi have made modest moves in the right direction but
they have been nowhere near good enough.


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