Tuesday, April 15, 2008

Berlusconi To Revive Italian Economy?

So Berlusconi won the Italian election and will now for the third time become Italian prime minister. What does that mean for the weak Italian economy?

Since he was unable to revive it during his two previous terms, I am somewhat skeptical to the idea that he will achieve any significant improvement this time. His ideas does however look good, focusing on on tax and spending cuts. If he really implements these ideas then the Italian economy will likely become stronger. However, since the main problem of the Italian economy is over-regulation rather than over-spending and since he hasn't mentioned anything about regulation -at least not in the foreign press stories I've read. My Italian readers are welcome to correct me if that is a misleading impression- it seems unlikely that we will see any dramatic improvement. Still, a modest improvement is better than no improvement at all, and a stronger Italian economy would not only be good for Italy but for the entire European economy.


Anonymous newson said...

the last berlusconi government was incredibly disappointing on reforms. berlusconi blamed his erstwhile coalition partners, the udc for opposing all liberalization.
berlusconi is certainly no thatcher, he just loves public works too much (the messina bridge project is typical of his maxi-works).

tremonti, ex-treasurer of la casa della liberta', and likely to be the treasurer of berlusconi's pdl, has become very protectionist, very anti-china, which doesn't augur well.
as an offshore italianophile, i find the situation devastating. i'm hopeful for the lega nord's (the northern league) federalist model, but there are such powerful interests opposed to devolving power locally. garibaldi should have been shot for having united such disparate tribes. the centralist model is just perfect for rorting.

there are a few positives: the victory margin was significant allowing berlusconi to claim a strong mandate for unpleasant reform, la sinistra arcobaleno (the extreme left, hammer and sickle nostalgics) got totally thrashed.

but the negatives are huge and structural - massive public debt and pension liabilities, a seemingly unreformable and grossly inefficient justice system (creating weak property rights), and a education system almost entirely dominated by the public sphere, with the balance filled by the catholic church. (statism is relentlessly propagandized from cradle to grave, and successfully, too).

liberismo is achieved in a defacto sense by people ignoring the law entirely, and operating in the grey or the black market.

it's still a great place to eat, drink and be merry, but wise italians keep their money safe in singapore or switzerland.

6:39 PM  
Blogger flute said...

Since my wife is Italian, I have some insights into Italian politics and economy. Though I live in Sweden, so my insights are not so complete.

I see Berlusconi's victory as a disaster for the Italian economy. Their budget deficits will increase a lot since he plans (unfunded) tax reductions and big public spending (e.g. the Messina bridge - a madman's project). Berlusconi is notorious for ignoring EMU rules for budget deficits. In the long run this will also affect the value of the euro, since Italy is part of "Euroland".

The most dangerous parts of Berlusconi's comeback are not directly related to economy, but will probably affect it indirectly. His nearly total control of the Italian media will be back again. He owns half of Italy's TV channels and the other half are state controlled, i.e. by him. He seems to have strong ties to organised crime, though being so rich and powerful, he manages to get away from any charges made against him. This of course does not promote openness and an efficient economy, but rather censorship and shady economical practices. As Newson said, Italy also badly needs a reform of its justice system. I would also add that Italy also has a grossly ineffiecient bureaucracy, which badly impedes economic efficiency. The legislative system also needs reform, as does the whole philosophy behind Italian laws. There are so many "ridiculous" laws that are in practice impossible to abide by, that people just tend to ignore laws if they don't suit them, even when the laws actually serve a good purpose. The purpose of these laws seems to be the ability to prosecute people in an arbitrary manner. A very visible example is speed limits on Italian roads, which in most cases are ridiculously low. Berlusconi seems to have no interest in reforming any of these areas. It is not in his interest to promote reforms either, since an opaque system serves his shady connections.

Also, we should not forget that his coalition partners include Bossi's separatist party Lega Nord, which of course doesn't have any interest in improving the economic situation for the underdeveloped south of Italy.

"Bourlesquoni" will probably also create some political havoc on the EU arena, just like he did last time around. He isn't exactly famous for his tact.

P.S. I like Beppe Grillo's nicknames for Berlusconi - "The Psycho Dwarf" and "The Asphalt Head".

11:31 PM  
Anonymous Anonymous said...

It has always been like that in Italy.
As early as 1980 I read a book by Doug Casey "Crises Investing"
He wrote: "Italy is going to hell in a handbasket, but they still grow wine and make Fiats"

30 years ago and it´s the same old ballgame.

Göran, Sweden

8:43 AM  
Anonymous Anonymous said...

Agree with newson (I live in Rome). Especially for what concerns civil justice, black markets and property rights.

Berlusconi didn't cut spending in his last government, and it won't do that in this new one. The only market reform of his I can remember is about labor markets. Berlusconi has done a keynesian political campaign and his Economics factotum, Tremonti, is a protectionist, a deficit spender and an inflationist (but this is no longer under his control, fortunately). Besides, the center-right is deeply involved in guild protections (pharmacies, taxi drivers, small public employees), thus being against competition, and the northern Lega Nord is sufficiently entrenched in small northern towns to have a lot of political favors to give and a lot of political power to use in favor of its clients and above all its own members.

Berlusconi can't do worse than Prodi, except may be for what concerns social freedom (the center-right is full of conservatives and catholics) and the public deficit (Tremonti can be considered a supply-sider).


10:27 AM  
Anonymous Anonymous said...

To believe in Berlusconi's ties with organized crime requires to believe in the good faith of italian judges... there are lots of reasons not to, that is why I'm agnostic when there are political trials, as justice has been used too often as a political weapon. Berlusconi had a good reform for criminal justice in his previous government, but did nothing at the end, as usual.

And as he can't control his own media employees, there's no risk of media monopoly once he is Prime Minister: he won't control media public employees either. Media are mainly left-leanings and will keep on being mainly left-leaning now, as they were during the previous two Berlusconi's governments.

Berlusconi is useless but not harmful. He could have been the only novelty in italian politics of the last decades, but he has completely failed in being so in the past; he'll keep on failing in the future.


PS His economic factotum speaks about Eurobond. I guess his ideas are: write debts in EU's name and get rid of the bond price spread of italian sovereign debt... are there rumors of eurobonds outside Italy? It would be a good way to externalize financial problems to other countries, and to undermine the euro's credibility...

2:50 PM  
Anonymous newson said...

regarding the comment expressed by "anonymous" re berlusconi's absolute media control - this is a nonsense trotted out by the left.
anyone who's ever lived and worked in italy and understands how things work over there, realizes that the rai (state tv and radio) has always been a collection of rival fiefdoms, each dominated by the major political strands: the socialists, the christian democrats, and the communists. whilst officially this "lottizzazione" ended with the first republic (after the "clean hands" scandal broke, in the early nineties), in practice the staff remained the same, and so did the political orientation of the networks. rai 3 was the communist network, and its editorial line has always stayed the same. i listened to rai3 for the five years of berlusconi's most recent term, and the strident cries of dictatorship were relentless! the odd trophy head did roll in rai - biagi, luttazzi and santoro - but all three were partisan players. they revelled in their martydom, and i'm waiting for biagi to be nominated for beatification.

all italian newspapers receive substantial state subsidies, as well as money from their political backers, so there's no question of censureship. if "il manifesto" is now in commercial difficulties, that can only be attributed to their business smarts (communist business model - gotta laugh!)

having said all this in berlusconi's defence, he made all his real money from a cozy deal for tv licences with bettino craxi, the late socialist leader. mediaset's profits were particulary florid during the berlusconi2 term, and this is what got up "the economist"s nose so badly. but to examine italy through an anglosaxon prism is a gross error. in my view, italy is still in the medieval form; nationhood an artificial construct imposed over its real, fragmented nature.

as for the mafia, well they are apolitical, naturally gravitating to whomever is in office. every main party receives mafia-controlled votes, berlusconi certainly as much as prodi, and veltroni.

i'll finish my rant here, just by saying the cure for the mafia is the same for the rest of italy - shut down the vast flow of public monies. the mafia's largest earner is public works, where competing tenderers are intimidated into withdrawing. the other crime networks - la camorra and la 'ndrangheta could be attacked if the problems of the justice system were addressed. castelli, the previous minister of justice in berlusconi2 tried to reform the profession and was thwarted. the legal reform area is one area that i suspect will be revisited, as berlusconi has been the object of countless law-suits, which mysteriously were brought on at the most inopportune moments. he's got a very personal axe to grind here.

the lega nord has been joined by la lega del sud (raffaele lombardo) in berlusconi3, both parties are aiming at partial financial autonomy (north and south, respectively), along the lines of the spanish catalan model. in my view, this is the only way to confront the italian problem. to rid the swamp of alligators, you've got to drain the water.

5:04 AM  
Anonymous newson said...


8:37 AM  

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