Lasciate ogni speranza ch’entrate

(Abandon all hope, ye who enter here)

Dante, Inferno, Canto III

Dante’s hell is generally a good description of Italian politics. His Commedia advances from hell to paradise via purgatory. While one should not stretch this metaphor too far, there is nevertheless hope for Italian politics. Paradoxically, the current crisis may turn out to be the best thing that has happened to the country in years.

Romano Prodi, the outgoing prime minister, has failed in the task he set out to achieve two years ago: to reform the economy. His failure stems not from the fact that he managed to stay in office for only 20 months: with his wafer-thin majority in the Senate and the coalition partners he had to put up with, an early collapse of his government was a near certainty. He failed because he made a mess of the short time he had available.

He could have delivered at least some of the centre-left’s promised agenda of reforms and redistribution, but delivered neither. This was due in large part to an almost pathological desire for consensus. He did not even attempt to reform Italy’s chronically unproductive public sector, a source of both excessive deficits and low productivity. As Francesco Giavazzi, economics professor at Bocconi University, noted in a recent article*, there was no genuine income redistribution either. The Prodi government may have served its stakeholders, but the poorest Italians did not benefit. As a leader of the left, he was a disappointment. As a reformer, he was a disaster.

There is a now a real chance that Silvio Berlusconi will become the next, or next but one, prime minister. It is to be hoped that this can be avoided. Mr Berlusconi, who governed Italy twice in the past, will be remembered as a prime minister who abused power to further his own private interests. At the same time, his last administration managed to undertake two important economic reform programmes: a more than decent labour market reform package and pension reform.

So where is Italy heading now? President Giorgio Napolitano has asked Senate leader Franco Marini to form an interim government with a mandate to reform the electoral law. That is a great pity. Italy needs an interim government like a hole in the head. Interim governments in Italy have a habit of lasting longer than they should, and the political classes tend to overestimate the importance of electoral reform to the political process. Italians have become electoral reform geeks. They have tried out almost every system, some based on proportional representation, some with first-past-the-post elements. There is now a discussion about a German-style system, where parties must surpass a minimum voting threshold to enter parliament. That is all well and good. But the reason why Mr Prodi ended with an unworkable majority was not the voting system, but a split electorate. No matter what voting system is installed now, the centre-right is the favourite to win.

If he wins, Mr Berlusconi would have three choices. He could become prime minister of a centre-right coalition. He could hand over to somebody else. Or, and in my view by far the best option, he could form a grand coalition between Forza Italia and the Democratic party (PD), a party that arose last year out of the merger of Margherita and the Democrats of the Left. Neither Mr Berlusconi, nor Walter Veltroni, the PD leader, would be able to lead such a coalition, so this task might fall to a competent outsider. But Italy is fortunately not short of talented people who would be up to this challenge. A name that habitually pops up in this context is that of Mario Draghi, governor of the Bank of Italy.

A grand coalition may well be wishful thinking on my part, but I am sure it would offer better policies than any other alternative political constellation at the moment. A Berlusconi government would probably undertake some reforms, but almost certainly reforms of the wrong kind. Mr Berlusconi has a habit of confusing the interests of businessmen, such as himself, with those of the country.

So what kind of reform should the next Italian government try to implement? Public sector reform is clearly the most important. There is a debate about whether to improve the public sector, or reduce its size, or both. Mr Prodi has had an opportunity to do the first, and botched it. As a share in gross domestic product, Italy’s public sector is about as large as that of north European countries. But unlike Sweden and Finland, Italy does not deliver a comparable quality of public service. Italy has a particularly rotten education system, and this is not for lack of teachers employed, but for lack of teachers who turn up for work. If the next government did nothing other than this, it would have done more than all Prodi and Berlusconi governments of the past combined. Unfortunately, neither the traditional centre-left, nor centre-right governments have the guts to do this on their own.

I am more optimistic about Italy today than I was after Mr Prodi’s victory two years ago, if only because his failure may bring about a long-overdue recognition that traditional left-versus-right politics in Italy is chronically incapable of delivering change, and that new lateral approaches need to be tried.


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