THE re-election of Giorgio Napolitano as President of the Italian Republic this weekend – supported by the centre-left, centre-right, and the centre – is as much a cause for worry as a cause for relief. Temporary bipartisanship to allow new and more conclusive elections is welcome, but the possibility of a broad coalition government is not.
Italy already knows the perils of bipartisan government. For roughly 50 years after World War Two, the Italian government consisted of broad coalitions headed by the Christian Democratic Party. The right and left joined to keep Italy’s sizeable Communist party out of power. Now, establishment parties are moving towards governing together again because of the refusal of Beppe Grillo’s populist Five Star Movement to join a government that it does not lead.
With such diverse political outlooks represented in post-war governments, it’s hard to imagine how anything got done. And that’s just it. Nothing did, except for corruption. Politicians dished out favours to placate coalition members and the interest groups that supported them. Effective governance became purely incidental.
Italy’s economy – an export leader in the 1950s – became increasingly beleaguered as inflationary monetary policy became a political tool to buy the left’s support in the 1960s, and rigid labour regulations appeased unions in the 1970s. Italy’s response to a population left increasingly jobless was to put more people on the government payroll. Within every coalition, economic discontent was met with more spending, monetary easing, or regulations – never liberal reform. Enter the stagnation that has plagued Italy ever since.
In 1994, the courts exposed the five decades-old system of buying votes from politicians, unions, businesses, and ordinary citizens alike. When the dust settled, Italy’s political system went through radical restructuring, but Italy’s economy did not.
Now Italy’s contemporary parties, fatigued after two months of wrangling to form a government, need the stamina to embrace bipartisanship for as long as it takes to reform Italy’s electoral law, which is responsible for the inconclusive results of February’s elections. President Napolitano should then call for new elections.
Italy is in desperate need of reform. Taxes on labour are the highest in Europe, according to Eurostat. Businesses refuse to hire new workers because archaic regulations from the heyday of political patronage prohibit dismissing workers for poor performance, and make it difficult to lay off workers during economic downturns. Italy’s broken legal system, which the World Bank ranks last among OECD countries in efficiency, worsens an already poor business climate by making the resolution of contract and labour disputes prohibitively costly.
Time is of the essence. With non-performing loans representing 153 per cent of tier one capital – banking insolvency rivaled only by Cyprus and Greece – and 20 percent of central government revenue spent on debt service, Italy must reform to restore growth and reduce debt before coming into the crosshairs of financial markets distracted by Cypriot woes, Japan’s monetary easing, and the “Draghi Put.” But that can only happen with a capable government.