Reprieve For A State Behemoth

Just a few months ago, it looked as if Italy's IRI were headed for breakup. With interests ranging from Alitalia to superhighways, the huge holding company lost $6 billion last year. Its $45 billion debt handily exceeds net worth. It seemed that the sooner this relic of the ancien regime was liquidated, the better.

Not anymore. These days, the word floating around IRI headquarters is "restoration," not "liquidation." Prime Minister Silvio Berlusconi's July 27 appointment of Michele Tedeschi, a 31-year veteran of Italian state industry, to the chairmanship of IRI is a sign that the mastodon of Rome's Via Veneto may not be extinct after all. "IRI," says Tedeschi, "could become a very useful support for the strategy of cleaning up public industry."

STAYING IN CONTROL. So far, the Berlusconi government--despite paying lip service to the free market--has not shown any enthusiasm for further IRI sell-offs. In part, that's a result of the influence now being wielded by the right-wing Alleanza Nazionale, one of the three groups in the government coalition. AN's philosophy is to strengthen the state, not dismantle it.

But the inaction may also be a way to maintain control over IRI's richest asset, its majority stake in STET, Italy's telecommunications giant. So far, only one potential bidder has emerged: a group led by Mediobanca, the powerful Milan merchant bank. A STET sell-off has been postponed until at least mid-1995.

Initially, Tedeschi vociferously opposed Mediobanca's bid. But that was before his promotion to head IRI. Some suggest Tedeschi made a deal with Berlusconi that could eventually smooth the way for Mediobanca to land STET. The reason is that the politically weak Berlusconi needs the support of Mediobanca and the powerful groups behind it, such as auto maker Fiat. When it comes to understanding Italian economic policy, Machiavelli is often a better guide than Adam Smith.

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