The Debt Implications of Berlusconi’s “Pyrrhic” Victory

In many ways the recent Italian regional elections have been a success for ther centre-right government of Mr Berlusconi, apparently confirming the inoxidable popularity of the media-tycoon-turned politician, who has successfully survived recent corruption scandals (for the reconstruction of eathquake-stricken L’Aquila), sex scandals (the parties with prostitutes), the disclosed attempts to shut off a popular (critical) TV show, the economic crisis (-5.1% fall of GDP in 2009), the perennial state of conflict with the Supreme Court, the President of the Republic, the President of the Chamber of Deputies, the free press, and, of course the “Communist” opposition and the Judiciary.

Indeed, the rich northern region of Piedmont (Turin),  as well as the centre-south regions of  Lazio (Rome), Campania (Naples) and Calabria (Reggio), previously under centre-left rule, have tilted toward the centre-right, which now controls 6 out of 13 regions (they  were only 2, Lombardy and Veneto, before the elections). Thus, despite a growing disaffection of voters who diserted the polls in unusually large numbers (one in three didn’t bother to vote), the government coalition has striked a clear victory over a weak and divided opposition.

Yet, Italian politics is always more complicated than it appears, since the “real” power struggle often occurs within coalitions, rather than between them. It turns out that the government coalition’s victory resulted from a set back of the PdL (Berlusconi’s  Partito della Libertà), whose share of the vote has declined to 26.7% from 31.4% in the 2005 regional elections (and from 32.3% in 2009 European elections),  and from a more than proportional success of its main ally, the Northern Ligue, who has reached 12.7%, up from 5.7% in the 2005 regional (and 11.3% in the European) elections. The anti-immigration-neoprotectionist Ligue, among which  now rank the governors of Veneto and  Piedmont, even came close to overcome the PdL in its stronghold of Lombardy (Milan). These three dynamic regions make up for more than 38% of Italian GDP. Conversely, Berlusconi’s PdL did well in the poorer regions of the South, where the economy is weak, unemployment high, and political clienteles are often colluding with the organized crime. Finally, the government close victory in Lazio (Rome) was probably determined by the open support of the Church for an unremarkable “pro-life” candidate, who won against  Emma Bonino, Vice-President of the Senate,  former Trade Minister and former EC Commissioner for Humanitarian Aid, a civil right activist.

The Ligue’s grip on the productive North and the progressive “Southernization” of the PdL will likely set the coalition’s parties on a collision course: the Ligue will press ahead with the demands for “fiscal federalism”, which basically means “the North’s tax revenues shall stay in the North”. If the PdL concedes, it risks loosing the South to small independent pro-South parties, and definitely handling the North of Italy to the Ligue. If it resists,  the Ligue may pull off from the government (as it did in 1994).

For solving this conudrum, Berlusconi must  keep the government alive without condemning his own party to extinction. This has a cost, but, guess what, there is an easy way out: let future generations pay for it. Lower taxes for Northern firms and higher public spending (the pharaonic  MessinaBridge linking Sicilly to the mainland) for  the South will do the trick! (and say bye-bye to  public debt sustainability)

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2 Responses to "The Debt Implications of Berlusconi’s “Pyrrhic” Victory"

  1. Guest   April 2, 2010 at 12:22 pm

    Interesting analysis.This solution is nothing new, but is Italy really in a position where this would be workable, presently carrying such heavy public debt and EU obligations?

    • Paolo Manasse   April 2, 2010 at 3:36 pm

      It’s hard to say. EU obligations do not seem to be binding. By contrast, the risk of a Greece-type scenario may for some time discipline the Berlusconi government. My point is that the success of the Ligue in the North and the “southernization” of the PdL will strenghten the incentives for deficit spending.