A tale of two Italians
One could doom the euro; another could save it
Mr Berlusconi adopted a new austerity budget (with some dubious numbers) but did virtually nothing to accelerate Italy’s sclerotic growth. So on October 23rd, at the first of two European summits intended to deal with the euro’s crisis, he was told by Germany and France to come up with a credible reform plan in time for the next summit, three days later. “Italy has to save itself,” says one German official. If Italy does perish, the euro dies too.
Partly for that reason, Europe’s leaders do not have a great deal of leverage over Italy. But humiliation has had a certain effect. At a press conference after the first summit, Angela Merkel and Nicolas Sarkozy were asked whether they were reassured by Mr Berlusconi’s promises. The German and French leaders hesitated, stole a glance and smirked. The room burst into laughter. Rarely has a leader—from a founding member of the European Union, no less—been treated so disdainfully by his peers. George Papandreou, the Greek prime minister, is regarded more with pity than with anger. José Luis Rodríguez Zapatero, Spain’s prime minister, has regained respect for belatedly pushing through reforms that cost him his leadership.
Mr Berlusconi’s friends feigned indignation at his treatment; supporters organised a “laugh-in” outside the French embassy in Rome (Germany commands greater courtesy). But even Mr Berlusconi does not appear to take himself seriously. The prime minister returned to Brussels with a letter long on self-justification and promises, most old and some new. But even his minor concessions are endangering his coalition. Mr Berlusconi blames Umberto Bossi, leader of the Northern League, for holding back pension reform. Mr Bossi, in turn, accuses Mr Draghi of trying to unseat the government. The ECB’s letter, Mr Bossi says, was “a fusillade against Berlusconi”. The euro’s future could thus be determined by the actions of two Italians: Mr Berlusconi, the buffoon who may kill it; and Mr Draghi, the technocrat who may be the last man able to save it. Their new relationship may not start well; Mr Berlusconi broke off from discussions during the October 26th summit to tell an Italian television show that the euro was “a currency without a central bank behind it”.
Mr Berlusconi rose from the collapse of Italy’s old political order following the fall of the Berlin Wall and a succession of corruption investigations known as Mani Pulite (Clean Hands). He launched his own party; as a media mogul, he seemed fresh and dynamic. Court cases over alleged financial wrongdoings were an irritant but, in a country with widespread fraud and tax evasion, hardly fatal. At least, thought many, Mr Berlusconi might bring entrepreneurial vigour to government; his ribald comments about women were, well, part of being an Italian male.
Set aside for a moment the squalid allegations of bunga-bunga parties. Mr Berlusconi’s greatest failing has been his inability to reform the Italian economy despite ruling with a comfortable majority. Some saw him as a new Margaret Thatcher, but his economic liberalism was shallow; he perpetuated the old clientelism without the old parties. True, he has benefited from a weak opposition. But over time former allies, such as the Catholic church and business leaders, have turned against him.
Some bits of excellence survive in Italy, such as family firms in the north of the country. In public life, the Bank of Italy is the last refuge of professionalism. It is as if Italian politicians have understood that, however much they mismanage the state, the central bank must be allowed to do its job. It is hardly unblemished (one ex-governor is appealing against a jail sentence), but it has produced a technocratic elite of sorts. It has bequeathed presidents and prime ministers (Carlo Azeglio Ciampi, an ex-governor, served as both) when trusted neutral figures were needed.
Mr Draghi is not entirely of this world: he served in the finance ministry, and also spent time in the private sector (at Goldman Sachs). Yet as the Bank of Italy’s outgoing governor he has taken on its aura of competence and independence. He will preside over the ECB at a time of peril. Mr Trichet stretched his mandate by buying the bonds of distressed euro-zone states. He did so reluctantly, urging governments to take over the burden. But treasuries are short of money, and may never be able to protect large countries like Italy. If the firewall fails, only the ECB’s unlimited fount of liquidity can quench the flames. Will Mr Draghi dare use it against the wishes of his biggest shareholder, Germany?
Nobody wants to test the proposition. It would help if Italy itself were less flammable. Yet Italy is stubbornly resistant to reform. The indolent political generation brought forth by Mr Berlusconi may finally be booted out, but there is no obvious replacement. One idea is to resort, as in the past, to a technocratic government to implement EU-inspired reforms, with support from all sides.
So 150 years after Italy cast off foreign rule and won independence, the country still needs the vincolo esterno, the “external constraint”. For a time the role was played by the Americans and Europe. Now the constraint has an Italian name, Mr Draghi. If the euro is to survive, the ECB’s new boss will need to save his country not just from the markets, but also from its politicians.