Romano Prodi
Romano Prodi; drawing by David Levine


Like a snake trying to shed its skin, Italy has been making convulsive efforts for the last few years to shake off its old political system and become a “normal” democracy, one in which the alternation of government and opposition is an ordinary, unremarkable occurrence. With the victory of a broad center-left coalition in the elections of April 21, the country took a large step in that direction.

For the entire postwar period, Italy remained locked in a cold war stand-off. The presence of the largest Communist Party in Western Europe virtually guaranteed the dominance of the Christian Democratic Party and its allies in every government since 1946. The continuous control of power by roughly the same group of parties—Christian Democrats, Socialists, Republicans, and Social Democrats among them—led to a system of patronage that degenerated into increasingly widespread corruption. With the collapse of the Berlin Wall, the Communist Party changed its name and split apart, corruption investigations revealed billions of dollars in kickbacks from businessmen to politicians, and Italy got rid of its proportional electoral system in favor of one in which left-of-center and right-of-center alliances would contend for power.

During the last few years, these attempts to change Italian politics have seemed a failure. The old parties dissolved, split up, or recombined, but the new system appeared to contain the vices of the old and few of its virtues. Under pressure from the small parties, a quarter of parliamentary seats were still allotted on a proportional basis, with the result that there were more parties than ever. In many cases the old professional politicians were replaced by adventurers and dilettantes, who engaged in name-calling and fistfights on the floor of Parliament. The result was an all-too-familiar instability: there have been three national elections and four governments since 1992.

Still, underneath this surface confusion, some basic changes have been made. Quietly, and with little fanfare, the four most recent governments—supported sometimes by the right, sometimes by the left—have begun to reform some of the more extravagant aspects of Italy’s welfare state and put the country’s economy on a sounder footing. The political parties have slowly begun to respond to the logic of the new electoral system. The one lasting contribution of the television tycoon Silvio Berlusconi may have been to grasp the importance of forming broad new coalitions: he won in 1994 because he was able to patch together an improbable center-right alliance composed of his own Forza Italia party (Go, Italy!) and the former neo-fascists of the National Alliance along with the separatist Northern League.

In winning the 1996 elections the parties of the center and left appear to have learned from their failure in 1994. Under the shrewd leadership of Massimo D’Alema, the former Communists, the Partito Democratico della Sinistra (PDS, Democratic Party of the Left), moved toward the center, by openly and unapologetically forming alliances not only with many smaller left-wing parties but also with respected moderate leaders. D’Alema organized a new coalition called the L’Ulivo (The Olive Tree), which named Romano Prodi, a prominent academic economist and former Christian Democratic minister, as its candidate for prime minister. D’Alema then succeeded in gaining the support of Lamberto Dini, the prime minister of the most recent caretaker government, who had been the minister of the Treasury in the Berlusconi government.

These changes were more than merely tactical. Dini chose the left rather than the right, he said, because the PDS had shown a sense of responsibility in backing a series of difficult austerity measures that have significantly improved Italy’s balance sheet. The far-left party, Rifondazione Comunista (Communist “Refoundation”), opposes many of the PDS’s programs, such as privatizing publicly owned industries. But it decided to help D’Alema win the election, running by itself but agreeing to support a center-left government without actually being part of it. Prodi’s alliance won 51 percent of the Senate but only 46 percent of the lower house of Parliament. So he will need support on some issues either from the Rifondazione (which won 8.6 percent of the vote) or from some of the right-wing parties.

The center-left ran a serious, dignified election campaign which avoided mudslinging and stuck to the discussion of unexciting but important issues, particularly how to gradually reform Italy’s welfare state without throwing out the considerable benefits Italians have gained in the last forty-five years. If the left won by moving toward the center, the right lost by moving away from it. Forza Italia and the National Alliance fell out with the Northern League, giving their coalition a more narrow, right-wing look, and they ended up with 39 percent of the vote. Berlusconi ran a belligerent and divisive campaign that continued to rely on a red-baiting rhetoric that seemed anachronistic. “Who knows if there will be free elections in Italy if the left wins?” Berlusconi said in a rather desperate-sounding appeal just a few days before the vote.


Berlusconi tried to revive the old division between Catholics and Communists by addressing the nation on Easter Sunday on his own television networks, and urging all good Christians to vote for his party because it supported the family. (Actually he supports two families, the second of which he started while he was still married to and living with his first wife.) Gianfranco Fini, the leader of the National Alliance, said that Catholics would not vote for the left because D’Alema was an atheist. However, the Catholic Church, which had always supported the Christian Democratic Party, this time remained neutral. In post-cold war Italy, politicians who identify themselves as Catholic are now spread among the two electoral blocs. Prodi himself is a practicing Catholic.

While the center-left coalition had added new leaders such as Prodi and Dini, the center-right appeared increasingly to be dominated by Berlusconi and Fini. Two years after its creation, Forza Italia still seems like the private fantasy of a megalomaniacal billionaire rather than a broad-based political movement. Fini has shown much greater political skill and has done much to moderate the image of the National Alliance by insisting on the party’s commitment to pluralism. But he done little to improve its leadership, which is still largely composed of men who advertised their sympathies for fascism until two years ago.

The Democratic Party of the Left clearly seems to have transformed itself from the old Communist party into a modern reformist force. Just what it will do after being excluded from national power for over forty years is now a central question for Italians. But the PDS promised no ambitious social programs, settling for the more modest aim of making Italy “A Normal Country”—the title of the main campaign tract by D’Alema.


Italy has been anything but a normal country in the last two years. The scene has been dominated by the anomalous presence of Silvio Berlusconi, who managed simultaneously to preside over the largest political party, run Italy’s largest television and publishing conglomerate, and defend himself against numerous investigations for corruption. Berlusconi had decided to enter politics when the powerful Christian Democrat and Socialist politicians who had helped him create a virtual monopoly of private television were implicated in the Milan corruption scandal that broke in February 1992. The Socialist leader Bettino Craxi, who backed legislation allowing Berlusconi to own three television stations, was accused and convicted of collecting millions of dollars in bribes and was getting ready to flee the country for Tunisia. Berlusconi’s own company, Fininvest, was under the scrutiny of prosecutors who had discovered a $300,000 payment to the government official who drafted the law regulating Italian television—money that Berlusconi insists was a consulting fee but which prosecutors consider a bribe. Moreover, the PDS and its allies on the left were pushing new antitrust legislation that would have stripped his company of one or two of its networks.

A shrewd judge of public moods, Berlusconi saw that the great mass of Italy’s moderate voters, who had for many years supported the government’s discredited Christian Democrat and Socialist leaders, were now in search of a new political home. Berlusconi offered a reassuring mixture of continuity and change. As the founder of private television and the owner of A.C. Milan, Italy’s most successful soccer team, Berlusconi’s name was more widely known in Italy than that of almost any politician. He was the living symbol of the 1980s boom. A self-made man in a fairly stratified, static society, Berlusconi seemed to offer both the possibility of upward mobility and a new faith in the free market. Describing himself as a professional businessman rather than a politician (not unlike Ross Perot), he promised a pragmatic, can-do approach to solving problems.

The Democratic Party of the Left, still led entirely by longstanding former Communists, presented itself at the head of a motley collection of other left-of-center parties, the largest of which was Rifondazione Comunista, a group of hard-liners who had resolved to carry forward the Communist tradition. Rifondazione spent its energies in distinguishing itself from its moderate allies by calling for Italy to withdraw from NATO and to raise taxes on the treasury bonds largely owned by members of the middle class. The PDS was essentially asking Italians to vote for the remnants of the old Communist Party, which no longer even had the advantage of a coherent party line. By contrast, the telegenic Berlusconi, with his Italian version of Reaganomics, looked both newer and less threatening to an electorate that was anxious for moderate change.

That Berlusconi’s vast economic holdings might involve him in conflicts of interest did not seem to bother most voters. Nor did the criminal charges against some of his close associates. Nor did the prospect of Berlusconi—whose three national networks account for 45 percent of the television audience—also controlling the state broadcasting system, RAI, which accounts for another 45 percent.


But after taking office in May of 1994, Berlusconi’s liabilities became apparent almost immediately. His government’s first major initiative was to dismiss the board of directors of RAI and put the public networks under the control of his own allies. Next, he tried to rewrite the laws on political corruption just as various investigations were beginning to zero in on his own company. Berlusconi’s brother, Paolo, and his chief financial officer admitted to having authorized bribes to tax inspectors in order to avoid audits. The government began to unravel in November 1994, when the prosecutors in Milan announced that they had found evidence that Berlusconi himself was involved in the case. The following month, the Northern League, one of his two principal political allies, announced that it was joining the opposition. Berlusconi was forced to resign, giving way to the caretaker government of Lamberto Dini, the banker who had been treasury minister in Berlusconi’s cabinet.

One might have thought that after his rather inglorious stay in office and his mounting legal problems, Berlusconi would withdraw from political life. But in a country where illegality small and large is commonplace, many Italians were prepared to overlook the charges against him.

Italy’s old system did not just involve bribing a few thousand corrupt politicians and businessmen; it was, and is, an entire way of life that permeates every level of society. Shopkeepers throughout the country regularly pay off tax auditors and police to avoid harassment. Italians are used to resorting to connections in order to get a phone installed or a hospital bed or jobs for their children. Many cheat on their taxes, pay bribes for permits or licenses, use bogus medical certificates to get disability pensions, or build their houses in direct violation of zoning or building codes. On the whole Italians hate this system, but many have gotten rich from it. Entire categories of self-employed people—from lawyers to shopkeepers—routinely declare incomes for themselves lower than those they pay their employees. While many Italians were glad to see hundreds of arrogant politicians hauled off to jail, they were queasy about the prospect of zealous magistrates enforcing all of the laws. Those who choose or are forced to break the law amount to an electoral constituency in Italy, and one that Berlusconi has openly appealed to. Among his first acts when he took power was to declare amnesties for tax evasion and for construction projects that had not been legally authorized.

Since Berlusconi left office, many new revelations of alleged wrongdoing at Fininvest have continued to emerge. Prosecutors in Milan discovered what they believe is proof of some $10 million being transferred from a Fininvest account in Switzerland to an account of Bettino Craxi in Tunisia. But Berlusconi has succeeded to a remarkable degree in eroding public support for the magistrates in Milan, whom he says are instruments in a left-wing conspiracy. Two of the chief investigators in the Milan anticorruption team are indeed close to the left, but others are well known for their moderate or right-wing political views. In fact, the driving force of the investigation, Judge Antonio Di Pietro, was a law-and-order conservative whose record presented the most obvious contradiction to Berlusconi’s claims about a Communist plot. A former policeman from a simple peasant family, Di Pietro became a folk hero by taking on Italy’s most powerful and arrogant politicians.

Berlusconi’s strategy was to “divide and conquer” by separating the extremely popular Di Pietro from his largely anonymous colleagues at the Milan prosecutor’s office. From the moment that the bribery investigation began in 1992, Italian politicians have done their best to dig up evidence to discredit Di Pietro. In late 1994, the Berlusconi camp found that before the corruption investigation got going, Di Pietro took an interest-free loan of about eighty thousand dollars from a friend, who also helped him to buy a Mercedes. But the friend worked for a large insurance company and the money, in fact, came not from the friend but from the company. Evidently, the company felt it might come in handy to have a friend in the local prosecutor’s office. The loan did not have the desired effect: the company was later prosecuted for bribery in an unrelated case, and Di Pietro repaid the money when he learned where it came from.

The company president decided to hold the ace up his sleeve until its value suddenly increased in November 1994—when the Milan prosecutors subpoenaed Prime Minister Berlusconi in the bribery case. Almost immediately afterward, the insurance executive paid a call on Paolo Berlusconi, the prime minister’s brother, and laid out his evidence implicating Di Pietro. Paolo Berlusconi sent him to speak with Silvio Berlusconi’s lawyer, Cesare Previti, who was then minister of defense. Previti helped start an investigation into the case. When Di Pietro found out about the investigation, he decided to resign rather than face humiliating public charges of corruption. The investigation into Di Pietro was dropped immediately after his resignation.

It now seems likely that Di Pietro was blackmailed, forced to resign, and effectively silenced. Since Di Pietro refused to explain his reasons for resigning, Berlusconi claimed publicly that Di Pietro had done so because he was not in favor of the investigation into Fininvest, in which Di Pietro had, in fact, a leading part. Berlusconi was thus able to say that Di Pietro, the national hero, was on his side and not with the “Communist magistrates” in Milan, who were, he said, always plotting against him. The Berlusconi camp then began to actively court Di Pietro, offering official positions to the same man they had just been investigating. Di Pietro eventually refused, but this brief flirtation seemed to give the impression that Berlusconi and Italy’s champion of clean government were allied against the “toghe rosse” (“red robes”) of the Milan prosecutor’s office, as Berlusconi likes to refer to it.

The tangled story of Di Pietro’s improprieties in accepting an interest-free loan and the Berlusconi camp’s role in engineering his resignation did not come out until last summer. By that time, the Italian public had become thoroughly confused.


During the 1996 election campaign itself Di Pietro was exonerated from any wrongdoing, while Paolo Berlusconi and Cesare Previti were indicted for their part in the plot against him. Many Italians wanted Di Pietro to run for office, but he said that although he was innocent he would not enter public life in view of the charges that had been circulated about him, making a rather pointed contrast with Berlusconi.

Not only did Berlusconi insist that he would be prime minister if the center-right won, but he selected numerous other Fininvest employees who were either on trial or under investigation to run for office as well. These including the newly indicted Previti as well as the key witness in Berlusconi’s own bribery trial. Some cynical political observers speculated that the man, who had already spent months in jail, had been offered a seat in Parliament in exchange for not implicating Berlusconi, since parliamentary immunity would prevent him from returning to prison. (He did, in fact, get elected, but there is no evidence he accepted a deal.)

As the election campaign of 1996 got under way, Berlusconi was hit by yet another scandal, this time started by someone within his inner circle. The longtime girlfriend of Vittorio Dotti, one of Berlusconi’s chief lawyers and the leader of Forza Italia in Parliament, told prosecutors that she had heard another of Berlusconi’s lawyers, the ubiquitous Cesare Previti, brag about all the judges he had bribed. She claimed that she had seen him give money to one of the most influential judges in Rome, who was in fact discovered to have hundreds of thousands of dollars in Swiss bank accounts. “I am the lawyer for Berlusconi’s legal business,” Dotti reportedly told his girlfriend. “Previti is the lawyer for his illegal business.”

Berlusconi’s reaction was not to demand an explanation of Previti, but rather to put pressure on Dotti to repudiate his girlfriend. When Dotti refused, he was thrown out of the party, while Previti’s candidacy was reconfirmed. The Berlusconi TV networks concentrated their reports on the “betrayal” of Dotti; they did not consider it newsworthy that one of Berlusconi’s most trusted associates might have been paying off judges in exchange for favorable court decisions. Dotti said in a recent interview: “I now understand what it means to have three TV networks at your disposal in order to destroy your enemies.” A journalist for Turin’s La Stampa asked him: “Isn’t it a little late to discover this after sixteen years as Berlusconi’s lawyer?” To which Dotti replied: “I admit I underestimated the problem.”

Berlusconi’s trials and investigations were the subject of daily comment in the press and much talk among Italians. But the charges against him and Previti and their associates did not become an issue during the campaign. The television networks—not surprisingly—barely reported Berlusconi’s legal problems. And the politicians of the center-left decided that they would not gain from mentioning them. Berlusconi’s legal difficulties “may even help him,” Romano Prodi told me when I met him during the campaign. “Italy,” he said, “is a country where the relationship between the citizen and the state is very fragile. People have enormous distrust of the government. And he is very good at playing the martyr.”

The left had attacked Berlusconi violently in the 1994 elections and it had seemed to backfire. As a result they adopted a policy often referred to as “buonismo“—goodness. “We consciously made a point of avoiding polemics,” Furio Colombo, a journalist for La Repubblica who joined the Olive Tree and won a seat in Parliament in his native city of Turin, told me. “We refused to say anything negative about our opponents, refused to respond to insults, avoided getting dragged into controversy by journalists, and continued talking about what we intended to do.” Massimo D’Alema of the PDS even made a conciliatory visit to Fininvest headquarters in Milan. “We consider this company a resource for the country and we have no plans for a vendetta should we win the elections,” he said. “We hope to have a civil dialogue between government and opposition.” By contrast, Forza Italia circulated an internal memorandum listing a series of “hostile” publications (including Italy’s largest newspaper, Corriere della Sera) that its members should stop buying, while one of the leaders of the post-fascist National Alliance let it be known that he had a list of television journalists to be fired after the center-right won the elections.

Many worried that Berlusconi’s control of television could swing the election in his favor. Although the government had issued a decree requiring “equal access” to television, two of the Berlusconi networks flagrantly defied it. Emilio Fede, the anchorman of Berlusconi’s Network 4, announced on the air that he would pack his bags and leave the country if the center-left won the elections—a promise he has not kept. On the rare occasions he gave space to Berlusconi’s opponents, Fede used it to ridicule them. On April 1, after quoting a remark by Romano Prodi on his newscast, he said: “I don’t think even Prodi understands what he is saying…. Prodi used to make me laugh, now he makes me cry.” Two days later, he broadcast eight and a half uninterrupted minutes of Silvio Berlusconi’s daily campaign speech, which started with a stirring rendition of the Forza Italia hymn and ended dramatically with Berlusconi’s yelling “Viva l’Italia!” to the thunderous applause of an ecstatic crowd.

The situation on the public stations was not nearly as bad, but even there Berlusconi was seen and heard three times more often than any other candidate. By contrast, Prodi, the Olive Tree’s candidate, seemed almost to avoid television, traveling around the country by bus, talking to meetings town by town. Prodi was anything but an ideal television candidate. A fifty-six-year-old economics professor from Bologna and a government technocrat, he has thick, black glasses, a stolid manner, and a round, doughy face. “A Bolognese tortellino with human features,” his opponents have called him. He frequently swallows his words and pauses as he thinks through an answer. When he first started campaigning, he became so nervous on television that viewers had a hard time understanding him.

Unlike Berlusconi, who practices for every television appearance and uses heavy make-up, Prodi drove his political consultants to distraction by refusing most of their advice. “He was born a university professor and he’ll die a university professor,” his campaign manager Silvio Sircana says. While Berlusconi promised to lower people’s taxes, Prodi talked about the fallacies of applying supply-side economics, including the Laffer curve, in Italy and the need to maintain current tax levels for at least the next two years. “Television requires simplification and some issues require complexity,” Prodi told me. “But I’ve found talking to all kinds of groups that people want to discuss the issues. We need a little seriousness. I’m not a performer, but I have to hope that my lack of glamour works in my favor.”

The strategy of not trading blows with Berlusconi may have worked like Muhammed Ali’s famous “rope-a-dope,” when he would lean against the ropes and allow a stronger opponent to punch himself out before he went on the attack. While supporters of the center-left kept urging their leaders to fight back, Prodi and D’Alema’s calm politeness appears to have been reassuring to undecided moderate voters. Berlusconi and Fini looked shrill and aggressive in the television debates, constantly interrupting and even shouting down their opponents. Berlusconi, supposedly a “master of the media,” apparently forgot Marshall McLuhan’s dictum that television is a “cool” medium in which anger plays poorly. Berlusconi even compared the prosecutors of Milan to a band of killers who had terrorized the city of Bologna a couple of years ago. The voters may have been willing to give Berlusconi the benefit of the doubt about the criminal charges against him; but post-election surveys suggested they did not appreciate his verbal violence and disliked the idea of a prime minister at war with the judiciary.

Berlusconi’s domination of the television may have had an unexpected effect. He appeared so often, repeating the same slogans again and again, that he ended up seeming like a wind-up toy. “I did too much TV and in the end some of those debates wound up being useless, excessive,” Berlusconi told reporters the day after his defeat. “I want to disintoxicate myself from TV.”

Relatively new to television viewers, Prodi did not seem at a disadvantage when he finally faced off against Berlusconi in two televised debates at the end of the campaign. Since everyone had heard how inept he was supposed to be on television, he surprised people when he more than held his own against Berlusconi. When Berlusconi attacked Prodi for being part of the old system because he had twice been the head of Italy’s largest state-owned holding company, IRI, Prodi replied: “The difference between Berlusconi and me is that he ran the country for the good of his company and I ran a company for the good of the country.” Berlusconi seemed a little stunned. His desire to win at all costs made him look bad. In the first debate Berlusconi violated an agreement that Prodi would be the closing speaker, breaking in to steal the final word.

In a country that is laboriously learning new democratic rules, to show a sense of fair play and respect for one’s opponent is not just a matter of style. Berlusconi said that if the politicians of the center-right won a majority, they would, without even consulting the opposition, rewrite the constitution to create a presidential republic. The center-left promised that they would work closely with all the other parties in making further changes to Italy’s electoral laws. Berlusconi and Fini seemed to think that showing contempt for an opponent was a sign of decisive leadership; Prodi tried to suggest that civility is a necessary part of a democratic culture. “The right was punished because of its intolerance and lack of moderation,” Di Pietro was quoted as saying after the election. (Subsequently Di Pietro was selected by the Prodi government as Minister of Public Works, charged with overseeing public contracts, which have been a major source of corruption.)

Some have called for Berlusconi to step down as the leader of Forza Italia, but he has steadfastly refused. “I may be immodest, but I consider myself a resource for the nation,” he announced afterward to the Corriere della Sera, “I told myself: surely, the country with a Berlusconi in its hands, and a desire to modernize will take advantage of the opportunity. Instead…”

The recent Italian elections may turn out to be a turning point not just in Italian life but in the history of televised politics. No politician of any other major democratic nation has had as much power over television as Berlusconi, or has used it in as muscular a fashion to impose himself on the voting public. In two elections his control of television stations helped him carve out an electoral base of 20 percent, but he has not been able to enlarge it.


The main issues in the campaign were not very different from those being debated in the US and the major European countries. The central question was how to reduce the costs of the welfare state and increase its efficiency without demolishing the social programs on which people have come to depend. When Berlusconi and Fini called for lower taxes and for privatizing numerous government services, they sounded as if they were drawing on the Contract with America.

Prodi, the sober economist, said it was demagogic for a country whose national debt is 125 percent of the size of its gross domestic product to consider a tax cut. At first, it looked as if this position might turn out to be disastrous. In Turin, Prodi was practically booed off the stage by an audience made up largely of shopkeepers who had cheered Fini’s call for a tax cut. But Berlusconi and Fini paid too much attention to Gingrich’s success in 1994 and not enough to his problems in 1995 and 1996. They were put on the spot when they were asked which government programs they would eliminate to pay for the tax cut or what privatization would mean for the national health care system.

At one point, Fini made the bizarre proposal to eliminate withholding taxes altogether. Rather than have their taxes taken from their paychecks, employees would voluntarily pay their taxes, like self-employed people. In a country that has enormous difficulties getting people to pay taxes at all, Fini’s proposal would have gutted the one part of the tax system that works, creating a potential financial disaster and an administrative nightmare. Two days later, he withdrew the idea, saying it was only a “provocation” to get people to reconsider the tax system. By the end of the campaign, Berlusconi had withdrawn his proposal for a tax cut, saying it would not be possible to put it into effect soon.

Suddenly the deliberate, rather plodding Professor Prodi began to look reassuring. “The Reagan—every man for himself—approach will not work here,” Prodi told me. “Europe is different and Italy has a long tradition of solidarity. People are terribly afraid of being abandoned. No one questions the importance of the marketplace, but the government has to have a role. To put it in American terms, we are closer to the positions of Robert Reich than to Gingrich. We must defend the ‘stato sociale,”‘ i.e., the basic welfare system.

Ironically, the center-left may have won because it seemed the more “conservative” party, while the center-right promised the kind of radical changes and high-handed style of governing that put people off. In reality, the differences over policy between left and right in Italy are not that great. Even though Berlusconi talked about “liberalizing” the Italian economy, his main ally, the National Alliance, gets many of its votes from small shopkeepers and low-level civil service workers, who have the most to fear from major changes in the Italian state. Anyone who governs Italy will have a relatively narrow margin of discretion within which to work. The country’s choices are limited by powerful opposing forces. The Maastricht Treaty requires each nation taking part in the planned European monetary union to maintain a national debt no greater than 60 percent of GDP before the end of the century. Italy’s debt is now over 120 percent. Prodi and the PDS say they are committed to meeting this and the other requirements of the European Union. If they are to make good on that promise, or come close to doing so, they will have to force Italy to cut its national borrowing, bring down inflation, and remove both subsidies from industry and trade barriers. On the other hand, Italy’s deeply rooted traditions of labor rights and social welfare will act as a brake against aggressive changes in economic policy.

In fact, one of the least noticed facts about Italy in recent years is that it has accomplished remarkable economic reforms with a minimum of social unrest. The technocratic governments of Lamberto Dini and Carlo Ciampi made significant reductions in the budget deficit between 1993 and 1995, from 10.9 to 7.2 percent. It is still higher per capita than the deficits of France, Germany, and the US, but it has been steadily coming down. Italy’s economy grew at a rate of 3 percent last year, faster than that of any other country in Europe and its inflation rate has dropped below 4 percent. With the cooperation of the PDS and the unions, Italian workers accepted a painful temporary wage freeze and a partial reform of the country’s extremely generous public pension system. Italy has eliminated some of the worst parts of its old bureaucracy, particularly the Ministry for State Industries and the special fund for aid for southern Italy, both of which had become vehicles for patronage and corruption.

Prodi has proposed tax simplification and reform. It is not true that no one in Italy pays taxes: most salaried employees pay very high taxes—as much as 51 percent—while many others pay little or none. The tax slogan of the Olive Tree alliance is: “Make everyone pay so that we can all pay less,” which is easy to say and very hard to do. Prodi has advocated privatizing Italy’s state phone system, which is one of the worst and most expensive in Europe. Other European airlines will soon be allowed to operate within Italy’s domestic market, which will put even more pressure on state-owned Alitalia, which is badly run and already hemorrhaging money.

But even more difficult problems face Prodi. Italy’s shrinking work force cannot continue to support both an aging population and the 12 percent of unemployed workers, most of them concentrated in southern Italy, where the unemployment rate is over 20 percent. Under current law, unemployed workers have a right to refuse any job they are offered and continue to collect unemployment insurance. The flow of immigration from south to north has stopped in part because many workers in southern Italy prefer to stay home and receive unemployment payments rather than move to northern cities.*

Quite courageously, the PDS has proposed to change this system. A rigid wage structure now requires the state and many businesses to pay the same salaries in all regions, even though productivity and the cost of living in southern Italy is much lower. The result is that few will invest in southern industries and government spending accounts for 70 percent of the region’s GDP. But, so far, Italy’s unions and many within the PDS are deeply committed to the tradition of uniform wages. This sets the stage for a battle between the left wing of the Olive Tree coalition, and those in it who are trying to introduce market reforms. Prodi can also expect stiff opposition on wage issues from the Communist Rifondazione, whose cooperation he will need, particularly in Parliament.

Reforming Italy’s welfare state will be extremely difficult for the left, but it may be impossible for the right. Just as only Nixon could go to China, only the left can introduce dramatic reform in the labor market. And making some major changes is critically important if the center-left’s victory is to be anything but ephemeral.

The old parties collapsed because of deep dissatisfaction with systematically corrupt governments. One of the most important results of the April elections is the continuing strength of the federalist Northern League, which shows that anger at Italy’s bloated, highly centralized state has not diminished. If the League had joined forces with Berlusconi, as it did in 1994, the center-right would have won again. Lacking a decisive margin of support in Parliament, Prodi faces the immensely difficult task of collaborating with the League and the right-wing parties to introduce important changes while not alienating the far left. Here his situation recalls that of prime ministers in France and other European countries during the last forty years—an indication, perhaps, that Italy is becoming a “normal” nation.

May 9, 1996

This Issue

June 6, 1996