Letta Appointed Prime Minister, Italy Gets New Government

Enrico Letta was sworn in as Italy’s prime minister after forging an alliance with Silvio Berlusconi, ending a two-month stalemate and signaling a generational shift in the country’s politics.

The ceremony was marred by a shooting outside the prime minister’s office across town. Two police officers and the suspect were wounded in the incident, SKYTG24 said. The gunman was arrested and identified as a 49-year-old with psychological problems, and the shooting didn’t appear to be politically motivated, SKYTG24 reported.

Letta, 46, took the oath of office with his 21-member Cabinet at the presidential palace in Rome to become Italy’s third-youngest premier since World War II. He named a record seven women to his Cabinet, including former European Union commissioner Emma Bonino as foreign minister. He also appointed Bank of Italy veteran Fabrizio Saccomanni as finance minister.

“Letta’s choice of ministers shows his ability as mediator,” said Carlo Alberto Carnevale Maffe, professor of business strategy at Milan’s Bocconi University. “The ministers are all moderate and no extremists are included.”

The new prime minister has sealed an alliance with former premier Berlusconi, resurrecting the coalition that stood behind Letta’s predecessor, Mario Monti. While the deal gives Letta a majority in parliament, he must manage the competing agendas of his Democratic Party and forces loyal to Berlusconi to find common ground on policy.

Letta’s Cabinet was due to hold its first meeting after the ceremony and the outcome may reveal the extent of Berlusconi’s influence.

Berlusconi Demand

Berlusconi, a three-time premier, told Canale 5 television yesterday that Letta had agreed to his demand to use the first Cabinet meeting to eliminate a property tax on first homes and to reimburse last year’s payment. The pledge was central to Berlusconi’s campaign for the February elections and helped him narrow the Democratic Party’s 15 percentage-point poll lead to lose the vote by less than one percentage point and deny the Democrats a majority of seats in the Senate.

The Democrats won a majority in the Chamber of Deputies, but without the Senate couldn’t build a government on their own. The stalemate led to the resignation of Pier Luigi Bersani, who led them into the election. President Giorgio Napolitano asked Letta to try to build a government on April 24 and the premier was forced into a coalition with Berlusconi.

Angelino Alfano, general secretary of Berlusconi’s People of Liberty party, was named deputy prime minister and placed at the head of the Interior Ministry. Anna Maria Cancellieri, interior minister under Monti, will serve as justice minister. European Affairs Minister Enzo Moavero Milanesi will remain in the same role for Letta and the Defense Ministry goes to Mario Mauro, an ex-Berlusconi ally and member of Monti’s Civic Choice party.

Market Confidence

Letta’s swearing in ends a political stalemate caused by inconclusive elections in February that left the country with a hung Parliament.

He is starting his tenure with two-year government yields near a record low and the Italian economy, the European Union’s third-largest, in its longest recession for at least 20 years. Tax-cut plans enjoy widespread support in parliament, and members of the governing coalition have repudiated the fiscal austerity they imposed under Monti. The two-year note closed at 1.29 percent in the last trading session on April 26, down from 1.67 percent when voters went to the polls.

Letta’s party favors progressive taxation and counted on the support of labor unions at the polls. The party identifies itself as center-left and brings together ex-Christian Democrats including Letta and former communists like Bersani. People of Liberty is calling for cuts to public spending and it appeals to entrepreneurs and professionals.

Maintaining Unity

Letta will be pushed to tackle a new election law -- to reduce the probability of future stalemates -- as well as justice reform and a labor-market update that economists have said is needed to boost productivity.

The property tax, known as IMU, may be the first item on Letta’s agenda. IMU, created by Monti to help cut the deficit, became a symbol to Italians frustrated by budget rigor.

The main challenge for Letta, a former industry and European affairs minister, will be keeping Berlusconi committed and his own party intact. The Democratic Party, which fields the biggest force in parliament, nearly fractured during the post-election impasse after then-leader Bersani refused to bargain with Berlusconi and failed to gain a legislative majority.

Giuseppe Civati, a Democratic Party lawmaker in the Chamber of Deputies, said in an interview yesterday on state broadcaster RAI that he’s prepared to cast his ballot against the government in its confidence vote and that he may be joined by other dissenters.

“Berlusconi has a compact group behind him and Letta doesn’t,” said Federigo Argentieri, professor at John Cabot University in Rome. “He risks becoming a hostage of Berlusconi’s group and I think in that case he would resign.”

Berlusconi Trials

Justice reform may be a source of friction for the new government as Berlusconi contests three separate criminal trials and blames his legal troubles on political vendettas. Berlusconi is appealing convictions in a tax-fraud case and a wire-tapping trial. The billionaire is also on trial on charges of paying a minor for sex and abusing the power of his office. He has denied all wrongdoing.

The Democratic Party embraced People of Liberty, its historic adversary, for the first time in November 2011 when Berlusconi’s last government fell and the European sovereign debt crisis threatened to overwhelm Italy. Together, they installed Monti and his cabinet of professors and bureaucrats to impose tax increases and rein in borrowing costs.

The two parties were thrown together again this year by the emergence of Beppe Grillo’s Five Star Movement, the upstart party that grabbed a quarter of the vote in February. Grillo, an ex-comic and anti-establishment crusader, turned down Bersani’s offers of a partnership.

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