Global Economics

Berlusconi May Have Overplayed His Hand


Former Italian Prime Minister Silvio Berlusconi at a Pro-Berlusconi rally outside his Rome residence on Aug. 4

Photograph by Franco Origlia/Getty Images

Former Italian Prime Minister Silvio Berlusconi at a Pro-Berlusconi rally outside his Rome residence on Aug. 4

Once again, Silvio Berlusconi has pushed Italy’s government into crisis. Maybe, just maybe, that’s a good thing.

The five-month-old government of Prime Minister Enrico Letta is fighting for its life, after former premier Berlusconi withdrew from the governing coalition over the weekend. Letta has called for a parliamentary confidence vote on Oct. 2. To maintain a majority, he’ll have to lure defectors from Berlusconi’s People of Liberty (PDL) party, or from the Five Star Movement headed by comedian Beppe Grillo.

Berlusconi, 77, remains a political force even as he risks being banned from public office for a tax-fraud conviction. He is appealing separate convictions for illegal wiretapping and sex with a minor. But he may have overplayed his hand this time.

There’s widespread criticism that Berlusconi is simply trying to deflect attention from his legal problems. “The government crisis is just the result of Berlusconi’s personal issues, as the Senate was expected to vote for his expulsion from his seat,” Annalisa Piazza, an analyst at Newedge Strategy in London, said in a Sept. 29 note to clients. “Newspapers are clearly describing the latest PDL move as an irresponsible step.”

Even representatives of Berlusconi’s party are publicly expressing their dismay, and the newspaper Corriere della Sera reports that the PDL leadership is in chaos. “I thoroughly understand his state of mind, but I cannot justify or share the strategy,” said Health Minister Beatrice Lorenzin, one of five PDL Cabinet ministers who had been in the government until Berlusconi asked them to resign.

For Letta, the best outcome would be a new, stable coalition without Berlusconi. Accomplishing that “will be difficult, but not impossible,” writes Timo del Carpio, European economist at RBC Capital Markets in London. Along with disappointed PDL members, Letta may be able to win over some Five Star supporters who are growing “disenchanted with Grillo’s uncompromising approach,” del Carpio says.

The importance of stability was underscored on Sept. 27, when the International Monetary Fund warned that tensions within the existing coalition were creating risks of “policy slippages, stalling of structural and fiscal reforms, or rating downgrades.”

Italy has already suffered debt downgrades this year, most recently in July, when Standard & Poor’s lowered its rating to two levels above junk. The debt burden, about 130 percent of GDP, is Europe’s second-biggest after Greece. The IMF predicts the economy will contract 1.8 percent this year, and unemployment is at 12 percent.

A planned meeting of PDL lawmakers today should make clear whether Letta has a shot at assembling a new coalition, says Loredana Federico, an economist at UniCredit Research in Milan. “It is increasingly clear that Prime Minister Letta’s strategy will be to use his policy agenda to win the support of the moderate wing” of the PDL. If he succeeds, Federico says, Letta could not only avert a crisis, but “pave the way to the formation of a more moderate, less populist center right.”

Matlack is a Paris correspondent for Bloomberg Businessweek.

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