Forza (Go) Italy? Not Any More. It’s Nel Limbo (Stuck) Italy

Flash back to November 12, 2011: Italian President Giorgio Napolitano (age 86) and then-Italian Prime Minister Silvio Berlusconi (75) were at the political helm. But as Italian borrowing costs on 10-year notes reached 7 percent and the economy contracted, European and Italian political pressure forced Berlusconi and his government to resign, paving the way for former European Commissioner Mario Monti to form a technocratic government. Monti’s government collapsed 13 months later when Mr. Berlusconi’s party Popolo della Libertà (PdL or Freedom Party) withdrew its support.

Fast forward to April 20, 2013: Napolitano remains president, having reluctantly accepted reelection for the first time in Italian history. President Napolitano will be 94 if he serves a full second term. Although the center-left party, Partito Democratico (Democratic Party or PD), won the February election, PD is politically shattered over its dual failure to form a government and select a president.

To overcome this political inertia, President Napolitano tapped 46-year-old Enrico Letta as prime minister, a young leader who holds both conservative and liberal credentials. Letta’s uncle served as Berlusconi’s chief of staff and Letta was a member of the largest center-right party in Italy (the Christian Democratic Party) until it was dissolved in the 1990s before joining the PD and eventually rising to deputy leader. Letta personifies a grand political coalition, yet his ability to form a government was solely based on the consent of one person—Silvio Berlusconi. Berlusconi’s fall and immediate return to control the levers of political power during the past 18 months is nothing short of impressive. So after eight weeks of political wrangling to form a new government following inconclusive February elections and elect a new president, Italy has returned to where it started.

How long will this government last? As long as Berlusconi would like it to last or until the PD falls apart. But however long the Letta government is in place, it will be important to understand what it will and won’t be able to achieve.

On the positive side of the ledger, Prime Minister Letta is a young face and an urgently needed generational change to the Italian political spectrum. He is an experienced leader who previously served as head of one of the most successful Italian think tanks (AREL or Agency of Research and Legislation) which was supportive of pro-market and pro-business positions, unusual for an Italian center-left politician. Letta is also known for organizing a large annual gathering which attracts some of the most notable emerging representatives in Italian politics, business, and academia. He brings a fresh perspective to Italian politics as well as a reassuring pro-European stance and a deep understanding of the economic challenges that lie ahead for both Italy and Europe.

Unfortunately, the weight of the negatives facing this government is overwhelming. Mr. Letta’s PD, which received the most votes in the latest election, is now split into two factions: those who support a PD alliance with Berlusconi to ensure a majority in the government and those who are unable to accept a political marriage with an individual they have disagreed with for the last 20 years. The longer the Letta government remains in place, the more likely it is that his PD will weaken further, if not completely splinter into new political factions.

Letta’s premiership was stillborn due to the prevailing political paralysis. In some ways, Letta’s government is a less technocratic version of Monti’s government. Letta must push through difficult structural reforms to return Italy to greater competitiveness, even as the country’s two main political parties are in perpetual conflict over the following contentious issues:

• Taxes: PdL is in favor of tax cuts, PD is in favor of more taxes such as a property tax.
• Judiciary Reform: Judicial reform and reducing bureaucratic red tape could encourage greater economic growth but in this case, specifically Berlusconi’s four ongoing trials and his crusade to avoid jail time.
• Electoral Reform: This effort will be critical if all parties hope to avoid future occurrences of the previous eight weeks of gridlock and grant a clear majority in future general elections. However, the person or party that shapes the new laws will have great influence in shaping the outcome of the next election.

The political battles have already begun three weeks into the Letta government. On election reform, Berlusconi has proposed appointing himself to lead a Convenzione (or special committee) of representatives from all the political parties with the task of proposing a plan to reform the electoral system. On the question of property taxes, Berlusconi’s party has insisted on abolishing an unpopular tax imposed by the Monti administration; PD wants it to remain in order to avoid additional government spending cuts. Letta has split the difference: he will suspend the property tax in June, allowing Parliament time to reform the tax, but he has not stated when this process will be completed or if he will return the previously collected taxes. This strategy of finding the middle ground is indicative of how the Letta government will likely govern until it collapses.

Letta and Berlosconi are not the only political actors on the Italian stage. Former Prime Minister Mario Monti’s Centrist Coalition is also part of the Letta government but its influence has significantly receded after receiving 10 percent of the vote in the February election and failing to play a central role in either the reelection of Napolitano or the appointment Letta. The political player who caused the greatest upset during the general elections, Movimento Cinque Stelle’s (Five Star Movement) Beppe Grillo, was unable to translate his nearly 25 percent victory into political influence in parliament. He is now at a political impasse. Grillo’s antiestablishment and uncompromising position have prevented him from influencing the other political forces. On one hand, a PD-PdL marriage of convenience will only strengthen the Five Star Movement’s narrative that Italy’s traditional political establishment has run its course. On the other hand, Grillo has reinforced the perception that his party represents a movement for protest in general with little party coherency and an inability to formulate a political agenda beyond the views of Grillo. As a result, recent polls show that support for the Five Star Movement is declining.

As the political wrangling continues, so does the further decline of the Italian economy and the rise in unemployment. Letta is currently enjoying borrowing costs at pre-crisis lows but he loses precious time to return Italy to greater economic health as the eurozone slides further into recession. As a reminder of the uphill battle that lies before him, the Italian economy contracted 0.5 percent in the first quarter, its seventh successive quarter of contraction and confirmation that the EU’s third largest economy remains in its longest recession since 1970.

If Letta can only accomplish one thing, it must be electoral reform. A restructuring of the laws will allow President Napolitano to call for new elections. Italian voters will be asked to vote again and will be rewarded with a clear majority and a more stable government. Once a new government is formed, Napolitano will eventually resign, paving the way for the election of a new president. This could take place in a few months or early next year. With President Napolitano enjoying retirement, the monumental responsibility of moving Italy forward will be placed in the hands of new generation of Italian political leaders.

Heather A. Conley is senior fellow and director of the Europe Program at the Center for Strategic and International Studies in Washington, D.C. Simone Bemporad is a senior associate with the Europe Program at CSIS.

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