With The Scoundrels Gone, Who Will Run Italy?

Over the past few weeks, Italians have watched the most profound political upheaval since World War II with remarkable optimism. Most of them cheered as prosecutors in the "Clean Hands" investigation slapped handcuffs on an assortment of senior politicians and businessmen. The Milan stock exchange soared--even though officials at blue-chip companies such as Fiat, Ferruzzi, and Montedison were caught up in the scandals. It would all work out for the best, Italians thought.

But now, the mood is changing. Hopes that the nine-month-old government of law professor Giuliano Amato would lead the country into a new era have been dashed. The Prime Minister dealt himself what may prove a fatal blow on Mar. 5 by attempting to push through emergency decrees that would have curtailed the corruption investigations. Once seen as a selfless savior, Amato is now viewed as striving to preserve the discredited system. The hapless Prime Minister was even shouted down when he tried to address Italy's most prestigious business school, in Milan, in early March.

The "Clean Hands" investigation does seem to have driven a spike through the heart of the old order--a system in which an endless procession of ineffective coalition governments was sustained by payoffs from favored businesses. Scores of Italy's high and mighty are now languishing in damp prisons in Rome and Milan. Italians had gradually come to realize that this setup was costing them billions of dollars a year in graft and inefficiency. By running up enormous budget deficits and dragging its heels on privatization, the political Establishment was also contributing to Italy's falling dangerously behind France and Germany in economic competitiveness.

GUIDING LIGHT. But now, Italians--and their fellow Europeans--are starting to realize that bringing down the system that has governed the country for four decades was just the easy part. Building a new political system--with new laws, new parties, and new faces--is going to take time. The public's white-hot rage at disgraced Socialist leader Bettino Craxi and other politicians promises to complicate the job. Says actor Marcello Mastroianni: "I would put these thieving politicians in a cage under the wind and the rain, as in the Middle Ages."

Who the architects of the new system will be is a major question. Italy's aging politicians permitted few Clinton-style baby boomers to get much exposure. Younger, more modern politicians who just might have formed the backbone of a new political class--men such as Socialist Claudio Martelli and leader of the pro-business Republican Party Giorgio La Malfa--have had their careers blighted by the current corruption investigations. Some executives and pundits are even asking whether European Community officials should be asked to step in to help with technical assistance on political and economic reform--although that seems unlikely.

One politician who is suddenly getting a lot more notice is a soft-spoken Sardinian named Mario Segni. Son of a former Italian President, 53-year-old Segni has been a maverick figure within Italy's largest party, the Christian Democrats. He has been the guiding light behind a broad-based movement that seeks to replace Italy's traditional voting system of proportional representation with a British- or American-style winner-take-all system. Italians are expected to approve the measures in a nationwide referendum on Apr. 18. If the bruised Amato is forced to leave the scene, as many now think likely, Segni could be appointed by the Italian President to head a technocratic government until new parliamentary elections can be organized.

IMPASSE. There are many other people moving to fill the vacuum. On the left, there are unreconstructed communists, while on the right, neofascists hope to score big gains in the country's underdeveloped South. A key organization is the grass-roots Lega movement of the rich North, which aims to restructure the 123-year-old centralized Italian state, replacing it with a German-style federal system. Even Confindustria, the influential association representing big business, has opened up back-channel discussions with Lega, which has already captured key city councils in the North.

Besides their fear of getting caught in the prosecutors' net, executives are concerned that the investigation could paralyze the economy. To date, more than 335 politicians, officials, and businessmen have been arrested.

Judges show no signs of stopping: On Mar. 9, they jailed Gabriele Cagliari, chairman of ENI, the state-owned energy group. The investigations are causing extreme anxiety in corporate Italy. Executives spend their days worrying whom prosecutors will target next.

Important economic programs, including the Amato government's multibillion-dollar plan to privatize large sections of state industry, have been brought to a halt. It is unlikely that they will resume until much later in the year.

The serious political instability is not just an Italian problem. Italy, the third-largest economy in Europe, is a major trade partner with other EC countries. A crippled Italy weakens the EC. Already, officials in London, Paris, and Bonn are starting to look nervously at the turmoil in Rome. Europe is accustomed to raucous Italian politics. But Italy in chaos is another matter.

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