21.09.2011

Mired in sleaze, Berlusconi reaches end of the road

Italy's crisis is not purely economic, writes Toby Abse. The corruption of the political elite has contributed to its credit downgrading

Italy’s downgrading from A-plus to A by the ratings agency, Standard and Poor’s, on the evening of Monday September 19 is a clear indication of the rapid deepening of the country’s interlocking economic and political crises.

In the words of Standard and Poor’s, “The downgrade reflects our view of Italy’s weakening economic growth prospects and our view that Italy’s fragile governing coalition and policy differences within parliament will likely continue to limit the government’s ability to respond decisively to the challenging domestic and external macroeconomic environment.”^[1] It should be noted that the ratings agency also stressed that “Under our recently updated sovereign ratings criteria, the ‘political’ and ‘debt’ scores were the primary contributors to the downgrade”. No doubt it was the fact that the new ranking results from other than purely economic factors that led Berlusconi to comment that the downgrade was “dictated more by newspaper stories than by reality and appear to be negatively influenced by political considerations”.

After the narrow escape from a much-feared downgrade by the other leading ratings agency, Moody’s, on September 16 - anxiety about which had caused the Milan stock exchange to lose 0.65% by the close of trading on a day when the general European trend was one of recovery - the decision by Standard and Poor’s came as a shock to the Italian government, which had probably taken excessive comfort from Moody’s decision to postpone a new assessment of the Italian economy until next month. Since there had already been a 3.11% fall in Milan by the close of trading on September 19, despite Italy’s apparent respite from downgrading, the overall downward trend seems set to continue, even if the volatile state of the markets will lead to periodic bounces like the 1.91% upward movement on September 20.

It is now crystal-clear that the second emergency austerity budget pushed through both Italian houses of parliament in the first half of September did no more to placate the markets than the rapid parliamentary passage of the first in mid-July. As was the case with Greece, Portugal and Ireland, the demands for cuts will go and on. This could well unleash a downward spiral, as each successive austerity package further reduces domestic demand and slows the growth of Italy’s GDP, making it more and more difficult to pay off a growing debt, on which the interest due keeps rising. On September 19 the spread between German and Italian 10-year government bonds had reached 384 points - somewhat worse than the far from encouraging 361-point spread between German and Spanish bonds. Such a gap over any length of time will lead to unsustainable interest rates. At close of trading on September 20 the interest rate on 10-year bonds stood at 5.64% - just short of the 6% figure that is regarded as the danger signal in terms of risk of default.

It is widely believed that the Italian government’s forecast of a 1.1% growth rate for 2011 has recently been revised downwards to 0.7% and the perhaps somewhat optimistic estimate of 1.3% for 2012 seems to have been reduced to 1%.^[2] The latest International Monetary Fund forecasts are, of course, lower - they have just been reduced from 1% to 0.6% for 2011, and from 1.3% to 0.3% for 2012. This virtual stagnation in Italian GDP needs to be seen in a long-term context of low growth throughout the last decade, which cannot be ascribed to the events of 2008 alone.

The Italian economic crisis cannot be isolated from a much wider crisis of the euro zone. The increasing fears about a Greek default are now producing a domino effect, with Italy being seen as the next domino - the next candidate for a default and exit from the zone. Whether such speculation is unduly alarmist or not, this was the tone of discussion on Radio 4’s Today, the channel’s flagship news programme, on September 20, which could be taken as fairly representative of mainstream economic commentators. It is increasingly obvious that the European Financial Stability Fund, which has as yet not received the backing of the German parliament, will not be sufficiently well funded to support Italy or Spain and may even have serious problems in coping with Greece’s debt.

At present Eurobonds, through which the governments of the euro zone as a whole would take on responsibility for the debts of all the individual countries, have, somewhat predictably, the enthusiastic support of Italian finance minister Giulio Tremonti. While Eurobonds seem to provide an obvious solution, they are being resisted even by German chancellor Angela Merkel, leader of the Christian Democratic Union, not to mention the nationalist or neoliberal hawks amongst her coalition partners in the Free Democrats and the Bavarian Christian Social Union.

Berlusconi factor

However, the Italian crisis is not just a consequence of either years of high national debt and low growth or even of the turbulence in the euro zone, important as the factors outlined above are. The week since the Italian parliament finally passed the second austerity package has further dented the already low international credibility of prime minister Silvio Berlusconi, the Italian government as a whole and indeed Italy itself in the eyes of the markets, the European Central Bank and the premier’s political counterparts in Europe.

This follows the release of transcripts of conversations between Berlusconi and Gianpaolo Tarantini, the 36-year-old convicted cocaine dealer - or, as the Financial Times prefers to describe him, “prosthetics businessman”.^[3] Tarantini is said to have provided dozens of prostitutes for Berlusconi and the transcripts are of some of the 100,000 wiretaps collected by prosecutors. These have been published in Italy’s two leading daily newspapers, La Repubblica and Il Corriere della Sera, with some excerpts or summaries appearing in numerous foreign newspapers.

The Corriere assured its readers that it had omitted “the heavier or more vulgar passages, as well as detailed sexual descriptions” contained in the phone calls, but clearly even this paper, despised on the left for the extent to which its reporters and commentators have pandered to Berlusconi in recent years, could not resist printing pages of excerpts and numerous photographs of the women concerned, including Lucia Rossini and Barbara Montereale in a photograph they had allegedly taken of themselves in a bathroom at Palazzo Grazioli (one of Berlusconi’s residences).^[4]

In one conversation, Berlusconi says to one of the women: “Oh to pass the days with my babes - I am just the prime minister in my spare time” - a remark that none of his opponents has any intention of ever allowing him to forget (similarly in September 2008 he lamented the fact that he was facing a “terrible” week because he had a series of international commitments, including meetings with the pope, the Italian president, Gordon Brown, Nicolas Sarkozy and Angela Merkel - a remark hardly calculated to help him in his future dealings with the ECB). His friend, Vladimir Putin (who famously gave Berlusconi the huge bed in which he spent the night with Patrizia D’Addario at one of his parties), once said: “However much they nag signor Berlusconi for his special attitude to the beautiful sex - and by the way they nag him mainly because of jealousy - he has shown himself as a responsible statesman.” But this view will not be shared by heads of government within the EU.

Whilst some of his remarks to Tarantini seem absurd boasting on the part of a man in his 70s (including “Last night I had a queue outside my door - there were 11 of them, but I only managed to do eight”), this story has gone round the world and will not help increase confidence in the seriousness of the Italian government in the eyes of assessors from Moody’s or Standard and Poor’s.

The most damaging remark of all remains a state secret. Berlusconi is certainly on tape saying something offensive about Angela Merkel. Nick Squires in The Daily Telegraph suggests “he made derogatory comments about the weight of Angela Merkel”, but journalists in both British and German papers have maintained that the remark about Merkel was so obscene they could not repeat it.^[5]

It should be stressed that only a small proportion of the 100,000 conversations have been transcribed. Nonetheless, the full collection of tapes has been preserved and will be available to the defendants’ lawyers, who presumably could choose to reveal more material, should they feel it assisted their clients’ case. If Tarantini should ever fall out with his patron, the defendants may yet reveal some further bombshells. Tarantini received large sums of money from Berlusconi, which both he and the premier deny were blackmail payments, contrary to what investigating magistrates allege.

Mafia ties

Although the latest sex scandals have undoubtedly done nothing for Berlusconi’s international credibility and contributed to the downgrading of his country’s credit rating, the most serious threat to his legal standing remains the David Mills case. Contrary to many people’s expectations, Berlusconi turned up for the September 19 hearing of his trial - he is accused of bribing Mills to the tune of $600,000 to give false testimony at earlier trials in the 1990s.

Contrary to the stories put about by Mills and his allies in the British media, Tessa Jowell’s ‘estranged’ husband has never had his conviction overturned. He was convicted and sentenced to four and half years imprisonment at the original trial, failed to get the conviction quashed on appeal and only finally escaped on a bizarre technicality, when in February 2010 the supreme court decided, for reasons that baffle most observers, that Mills had received the sum six months earlier than the prosecutor had claimed at the original trial and that therefore the crime was a handful of weeks outside the statute of limitations.

At this week’s hearing, the magistrates decided, to Berlusconi’s annoyance and consternation, that five defence witnesses, whose testimony had already been heard in front of an English court, did not need to be heard again. As a result, it is now perfectly possible that the first stage of the trial could be completed before February 2012, when the statute of limitations would kick in. Mills is due to appear as a witness on October 24, while Berlusconi himself is down to testify on October 28, and by December he could be convicted.

Whilst Berlusconi would undoubtedly appeal and the whole thing would be timed out, such a conviction in the lower court would put an end to his hopes of the Italian presidency and make it virtually impossible for him to continue as premier. Therefore, Berlusconi wants to get the so-called ‘long trial’ bill, allowing defendants to call an almost infinite number of witnesses without any real criteria of relevance, on the statute book before his scheduled appearance in court. The effect of the legislation, which was passed in the Senate through the use of a vote of confidence in July and now needs to be voted through the Chamber of Deputies, would be to effectively sabotage the Mills trial - along with most of the others Berlusconi is currently involved in.

However, there are two rather more urgent matters that Italy’s political Houdini needs to get round before October 28 arrives. On September 22, there will be a parliamentary vote on the arrest of Giulio Tremonti’s former right-hand man, Marco Milanese, for a variety of alleged financial offences, to be followed on September 27 by another vote, this time of no confidence, on agriculture minister Saverio Romano, whom magistrates wish to investigate further for alleged Mafia involvement. It now seems almost certain that the vote on Milanese will be a secret one and there is a strong possibility that some of Tremonti’s numerous personal enemies in Berlusconi’s Popolo della Libertà party, together with one faction of the Northern League, will vote for his arrest, plunging the government into crisis. Moreover, it will be even more difficult in present circumstances, when some northern mayors and many rank and file activists are increasingly anxious for the Lega to break with Berlusconi, for the party as a whole to give full confidence to a minister whose name has frequently been mentioned by Mafia supergrasses.

The front-page editorial of Il Sole 24 Ore, the daily paper of Italy’s main capitalist confederation, Confindustria, is entitled “Signor Presidente, l’Italia prima di tutto” (‘Mr President, put Italy first’) and calls on Berlusconi to go now in the national interest.^[6] Emma Marcegaglia, Confindustria’s president, is quoted as saying that Italians are “fed up with being an international laughing stock”.^[7]

It is possible that this latter-day Caligula will fall, not because of his sexual adventures, but as a result of the close ties with the Mafia that have marked his entire career - combined with the fact that his increasingly evident criminal corruption has now become too much even for the Italian bourgeoisie.

Notes

1. img.en25.com/Web/StandardandPoors/RepublicofItaly.pdf
2. Il Corriere della Sera September 20.
3. See the very restrained account, by the standards of the Italian or the rest of the British press: ‘Scandal fails to dent Berlusconi’s support’ Financial Times September 18.
4. Il Corriere della Sera September 17.
5. The Daily Telegraph September 15.
6. Il Sole 24 Ore September 21.
7. The Guardian September 21.