How a Great Power Falls Apart
Decline Is Invisible From the Inside
Italy is in the middle of another existential political crisis -- and somehow, against all expectations, Silvio Berlusconi, the former prime minister, is at the center of it yet again. Forza Italia, Berlusconi’s party, forced last week the collapse of Italy’s left-right governing coalition if a legislative commission demands that Berlusconi relinquish his seat in parliament, thus forcing him to begin serving a one-year prison sentence for tax fraud. The latest bout of political instability hasn’t just triggered a standard round of name-calling among Italy’s political class; it has dramatically worsened the outlook of Italy’s already fragile economy, scaring off investors and bringing economic reform to a grinding halt. Milan’s stock exchange plunged 1.2 percent on Monday. Berlusconi seems more than willing to risk his country’s future to save his own neck, even if just temporarily.
Of course, that raises the question of why he is even in the position to do so. By any assessment, Berlusconi’s political career should have been over long ago. This is a man whose most distinguished contribution to his country during his decade of service as prime minister was the inventiveness of his sexual escapades. In the twenty years since Berlusconi was first selected prime minister, Italy has been the only country in Western Europe with a negative growth rate. He is openly despised -- not only by his ex-wife, who finally objected to his unabashed adultery, but also by most international leaders. (German Chancellor Angela Merkel was instrumental in the demise of his last cabinet.) When the courts finally convicted him of tax fraud earlier this year, it was fair to assume that Berlusconi’s long national adventure was coming to an end. It was also wrong.
Today, one in four Italians says that he would still vote for Berlusconi -- even if he causes the government to collapse in order to avoid a prison term. How has Berlusconi managed to maintain such popularity given his record of uninterrupted scandal, broken promises, subzero growth, and stalled reforms? Among would-be sophisticates, the answer has usually focused on Berlusconi’s prodigious media empire: he controls three television networks as well as numerous radio stations, daily newspapers, magazines, and publishing houses, not to mention the AC Milan soccer team and its broadcasting rights. But reducing Berlusconi’s popularity to his media holdings is much too simple. It fails to explain why Berlusconi has always been most popular when he has been in the opposition, rather than when he is campaigning as an incumbent and has public television at his disposal as well. Media is a factor in Berlusconi’s appeal, but not the main one.
The real answer can be summed up with a single word: taxes. Berlusconi’s base is the vast swath of Italians who believe that Italy’s entire political and legal system is rigged against them, the tax code above all. Berlusconi has always been eager to fan that skepticism into outright hostility. Italians aren’t attracted to Berlusconi because of his alleged ties to the Mafia, or his racially insensitive comments, or his skirt-chasing. They are attracted and amused by his cheeky populism against the powers that be, within Italy and abroad. He is playing a rogue familiar to Italians from classic comic operas; in that sense, his conviction on tax fraud bolsters his appeal among the public.
Italy’s tax code is, objectively, a mess. The tax system is so complicated that Italian companies and professionals are no longer on a level playing field with their colleagues in other countries. According to Eurostat, Italy’s average effective tax rate is 58 percent, against Germany’s 43 percent, Britain’s 40 percent, and Spain’s 29 percent. L’Espresso recently compared the paychecks of similarly stationed autoworkers in Germany and Italy. It found that the German worker pays up to 20 percent in taxes and that his Italian counterpart pays 33 percent -- not including local taxes and real estate taxes. Meanwhile, Italy’s tax collectors tend to allow well-connected tax cheats to get away with light fines after years of opulent dodging; they focus their punitive energies on the middle class, which tries to pay its taxes dutifully.
Generally, there is deep cynicism in the country about inequality -- not just financial inequality but the growing gap between the well-connected and the disconnected. When Prime Minister Enrico Letta recently announced that he would nominate Italy to host the 2024 Olympic Games, the reaction was sour. Most Italians seemed to assume that the Olympics would only be another opportunity for the country’s well-off to profit at the expense of the rest of the public, with well-connected firms receiving contracts to build stadiums and infrastructure as the majority of Italians were handed the bill.
But Italians most typically channel their discontent about politics into complaints about the tax code. The last thing Italians want is higher taxes, which is why few feel enthusiasm for the center-left parties, not to mention the European Union officials, who have suggested the need for more revenue. They prefer Berlusconi’s populist suggestions that taxes should be kept to a minimum, and, in any case, be ignored whenever convenient.
The last national election, held on February 24, was a case in point. Prior to the campaign, all polling indicated that the center-left Democratic Party, led by Pier Luigi Bersani, would emerge victorious. But when Berlusconi hit the campaign trail in early February promising to scrap the country’s new and much-hated real estate tax, he changed the country’s political discourse overnight. As soon as Berlusconi made his vow (which he did without consulting his party), the Italian-language Internet was flooded with commentary about his plan; no one seemed to care much about Bersani or the incumbent prime minister, Mario Monti. The final result was a virtual tie between center-left and center-right -- and an astonishing 25 percent for the protest party headed by the former comedian Beppe Grillo -- which ultimately produced the unhappy “grand coalition” that the country is saddled with today.
In some sense, Berlusconi’s political fate rests in the hands of his rivals. As long as Italy’s center-left fails to recognize the country’s deep antipathy toward taxes, Berlusconi’s party will hang around. He may not become prime minister ever again, but Forza Italia will front some viable surrogate and Berlusconi himself will remain a player in Rome. (The cognoscenti seem to think that one of Berlusconi’s daughters -- Marina, a publishing-house executive, and Barbara, a manager of the AC Milan soccer team -- will take the lead, though I doubt that Berlusconi would ever let his daughters take the plunge into Rome’s nasty political arena.)
The center-left now seems to have a leader with some of Berlusconi’s savvy and significantly more integrity. Matteo Renzi, the mayor of Florence, is an Italian version of former U.S. president Bill Clinton during his political ascendancy: he is young, charismatic, and liberal, and he has a traditional family. (He lacks Clinton’s reputation for philandering.) He wants to modernize the economy and promises a leaner tax code. Like Clinton during his rise, he is unpopular among the stalwarts in his own party, a bizarre mix of former Communists and former Christian Democrats. Enrico Letta, the moderate prime minister, would be wise to reach out to Renzi to broker a partnership. That would bolster the party’s appeal, both in terms of its personality and its policy.
From a strictly macroeconomic perspective, the last thing that Italy needs is higher taxes. Italy is still battling a recession; many Italian companies went belly-up during Europe’s financial crisis, unemployment is perilously high, and the country’s best and brightest are leaving to work abroad as soon as they graduate from university. Removing money from the economy would only harm the country’s prospects in the short term. Of course, in the long term, the country will need fundamental economic reform. After all, its GDP has been stagnant for almost 20 years. Raising taxes on some Italians may eventually have to be part of the solution.
But knowing the right policies has never been enough in politics; personality matters, too, as does the mood of the electorate. It has been Berlusconi’s singular virtue -- and the secret of his staying power -- that he has sensed and indulged the public’s discontent. But as enamored as the public is with Berlusconi, it is not satisfied with the country’s malaise; it also wants someone to acknowledge its desire for hope. If Italy’s center-left manages to find a candidate capable of doing that, it may finally be able to push Berlusconi offstage for good. After all: every comic opera eventually has to have an end.