Oct. 1 (Bloomberg) -- Italian political dysfunction sets a standard of consistency that even the U.S. struggles to match. Governments in Rome come and go with bewildering speed. Nonetheless, the latest lurch toward breakdown is notable. In seeking to pull his party out of the ruling coalition and bring down the government, former Prime Minister Silvio Berlusconi is putting his country’s struggling economy at risk -- and for the most cynical and self-serving of reasons.
Berlusconi has been found guilty of tax fraud, and a committee of the upper house of the Italian parliament is about to vote on his expulsion. He may be calculating that a manufactured crisis can deflect that action and strengthen his political standing.
Members of Berlusconi’s own party are asking whether he has finally gone too far. The answer is clear: Yes.
They should call a halt to his antics, even if it splits their People of Liberty, or PDL, party. The PDL ministers who serve in the coalition, led by Prime Minister Enrico Letta, ought to reject Berlusconi’s instructions, reverse their decision to step down, and consign their discredited leader to his rightful place -- as the subject of the most sordid chapter in modern Italian politics.
Berlusconi’s excuse for attempting to plunge Italy back into political crisis is that he opposes a small increase in the country’s value-added tax. In some ways, that’s a shrewd move, as one would expect from Berlusconi, a remarkable survivor of serial scandals. He might reckon to do well in an election fought on this issue. Italy needs to hit European Union deficit targets that it agreed to and reassure financial markets that public borrowing is under control, but cuts in public spending might have been easier to sell than a hike in the unpopular VAT.
Be that as it may, the last thing Italy needs right now is a period of political paralysis followed by yet another possibly inconclusive election. The sudden rift in a coalition formed only five months ago has already alarmed financial markets, pushing Italian 10-year bond yields toward 4.5 percent and widening the premium over German bunds to more than 260 basis points. Italian equities fell as well.
If the sense that Italy is once again spinning out of control gains a foothold, the repercussions could go much wider. Italy is the third-biggest economy in the euro area. Lately there have been tentative signs that the EU may be emerging from its long and painful recession. A new setback in Italy could put that in jeopardy.
It would fall to Italy’s president, Giorgio Napolitano, to dissolve parliament and call new elections if Letta’s administration fails to win a vote of confidence, which could happen this week. New elections, Napolitano rightly says, should be a last resort. Letta may be able to repair the coalition. He can hope to attract support both from PDL lawmakers disenchanted with Berlusconi’s latest excess and from previous PDL defectors now aligned with Beppe Grillo’s Five Star Movement.
Building a working coalition in Italy’s fractured parliament is never easy -- and Berlusconi has just made it especially difficult. Yet it will have to be done, with or without new elections. A rudderless Italy is a grave danger not only to itself but also to the European Union.
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