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 closevictory 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 Messina Bridge linking Sicily to the mainland) for the South will do the trick! (and say “arrivederci” to public debt sustainability)
(appearing on  1 April 2010)