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Berlusconi in the spotlight (again)

July 27, 2011

With signs that the European debt crisis could spread to Italy, the last thing that the country would seem to need is a political crisis. Nevertheless, that is precisely the scenario playing out over the past few weeks, as Prime Minister Silvio Berlusconi party faces dissent from its coalition partners. Berlusconi’s tenure has witnessed controversies on a seemingly constant basis, yet recently the threat of a government collapse has grown more acute. Italy’s borrowing costs soared earlier this month amid concerns over the country’s slow economic growth and high debt levels (at 1.8 trillion euros, more than Greece, Spain, Portugal, and Ireland combined). This prompted the government to pass a 40 billion euro austerity package. However, the country’s political squabbles threaten to further unnerve markets.

On July 19 the Italian parliament voted to strip the immunity of a member of Mr. Berlusconi’s party accused of corruption. The vote was made possible by defections from the Northern League, a coalition partner of Berlusconi’s People of Freedom party. The Northern League, an anti-immigrant party that wants to devolve more power to the regional level, blamed Berlusconi for the ruling parties’ poor showing in local elections in May. A defection by the Northern League would deprive Berlusconi of a majority in the Chamber of Deputies and necessitate a new election.

Given that threat, many deputies within the People of Freedom party would like to see Mr. Berlusconi step down. This Financial Times article (registration required) nicely summarizes many of the problems facing the Italian political and economic system. At least 84 MPs are under investigation, 49 of them from People of Freedom. Among them is Berlusconi himself, facing four separate trials, including one in which he is accused of “paying an underage nightclub dancer for sex.” Several members of his cabinet have had to step down over corruption charges. The Financial Times article cites the possibility that in the event of a government collapse the president could appoint a caretaker government composed of non-partisan technocrats. Whatever the short term outcome of the current crisis, in the long term Italy will have tackle more systemic problems of corruption and government-business collusion.

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