Battered by a sex scandal, the Italian Prime Minister is still in power, helped in part by his Finance Minister and weak opposition parties
By his own reckoning, since becoming Italy's Prime Minister, Silvio Berlusconi has endured 105 judicial probes and trials and 2,500 court hearings and spent more than 300 million euros ($409 million) in legal fees defending himself against allegations of tax fraud, bribery, corruption, and more. That's 48,000 euros a day since he was first elected in 1994, when he parlayed his celebrity as a media baron and one of Italy's richest men into a political career.
No conviction of Berlusconi has survived Italy's tortuous appeals process, a fact the Prime Minister cites as evidence that his judicial tormentors are nothing more than closet communists who want to bring him down. His latest trial begins on Apr. 6. Prosecutors in Milan allege that the Prime Minister paid to have sex with a minor—a young Moroccan dancer whose stage name is Ruby Heartstealer—and that he abused the power of his office to cover his tracks. "I'm not the least bit worried," Berlusconi said on Feb. 16.
Salacious details of Berlusconi's off-duty life, like allegations of suggestive dances with young girls in the bunga-bunga room of his villa, have made Berlusconi the butt of jokes. From economist Nouriel Roubini's Twitter page: "Berlusconi's defense: I screwed all Italians for 15 years for free and no one complained; now that I screw one and pay her, they give me hell." In demonstrations on Feb. 13, hundreds of thousands of Italian women called for Berlusconi's resignation and an end to the sexism they feel he has done so much to promote. Their slogan: "If not now, when?"
The answer may be: not just yet. Berlusconi's People of Liberty Party and its allies cling to a tiny majority in Parliament. In a Feb. 8 poll about possible early elections, 61 percent of respondents said Berlusconi should resign. Yet the survey showed that voters abandoning Berlusconi may shift to his coalition partner, not the opposition, so his alliance maintained a 3 percentage point lead over the biggest opposition bloc. The Democratic Party, the pillar of the opposition, is stuck in the political wilderness, with three leaders in three years.
With no compelling alternative, many Italians may vote for Berlusconi again if his legal troubles lead to elections before his term expires in 2013. He has a core following among voters who share his conviction that the Democratic Party is riddled with communists, or who admire him as Italy's ultimate self-made man and model of virility.
Berlusconi also has a secret weapon: Giulio Tremonti, his Finance Minister. While Tremonti has not reversed the widening economic divide between Italy and its main European Union partners, he has averted the kind of catastrophe that dragged down Ireland and Greece. That's an achievement, given that the International Monetary Fund last May described Italy's economic performance as "dismal." Among the failings cited were low productivity, a rigid labor market, and a bloated private sector. Italy's gross domestic product grew an average of 1.5 percent a year from 1999 to 2007, compared with 2.2 percent for the EU. Last year growth was a meager 1.1 percent, following a 2009 contraction in GDP of 5 percent.
A tax lawyer by training, Tremonti has kept the public accounts in order. He has tempered Berlusconi's populist instincts by playing bad cop to his boss's good cop. That meant blocking the kind of stimulus spending that helped turn Spain's 2007 budget surplus into a deficit of 9.3 percent of GDP by last year. "He is seen as the guarantor of fiscal discipline during a period when other governments were much more relaxed on the fiscal front," says Chiara Corsa, an economist at UniCredit Bank in Milan. As a result, Italy's budget shortfall was a manageable 5 percent of GDP last year.
Overall debt, though, remains almost 120 percent of GDP, vs. 76 percent for Germany. The yield premium that investors demand to hold Italian 10-year bonds over German debt has roughly doubled since early 2010. That is still less than half the gap between yields on German debt and the sky-high yields on Portuguese, Irish, and Greek bonds.
Tremonti, a northern Italian who first ran for Parliament as a Socialist and who regularly rails against the ills of globalization, is known for using creative methods to keep Italy's deficit in check. He has fashioned a series of amnesties for tax dodgers that pardoned their transgressions for a fee that was lower than the maximum penalties. In the most recent amnesty, Italians paid the government 5 billion euros to have 100 billion euros of undeclared funds regularized.
Both Berlusconi and Tremonti have gotten an assist from high household savings, which helped ordinary Italians weather the depths of the recent recession fairly intact, despite an 8.6 percent jobless rate. Private debt in Italy is only 42 percent of GDP, vs. 118 percent for Ireland. Tremonti has told EU authorities they should take this low private debt level into account when figuring out how to improve Europe's finances. EU authorities want mandatory debt reduction targets for the union's most leveraged states. Tremonti argues that Europe's debt crisis was caused by reckless banks and hedge funds, not public spending. "Public debt isn't the cause of the crisis. It's the medicine," he says.
Tremonti, 63, could end up succeeding the 74-year-old Berlusconi if his boss's position weakens dramatically and his party starts to disintegrate. For now, Berlusconi's supporters are defending their man and accusing the judiciary of trying to override the will of voters, who re-elected Berlusconi by a landslide in 2008.
Berlusconi's opponents, meanwhile, wonder if Italy can ever move beyond its fascination with the man. "We think the evil of Italy is Berlusconi," says Luigi Zingales, professor of finance at the University of Chicago Booth School of Business and a graduate of Milan's Bocconi University. "I think the evil of Italy is a culture that makes Berlusconi a normal politician. That is much more difficult to change."
The bottom line: While Berlusconi's reputation has been battered, he has no strong rivals and a respected Finance Minister.