Italy’s Corrupt Political Machinery Lurches Forward

After eight weeks of deadlock, the Italian political machinery suddenly lurched forward. It started Friday with the leadership implosion at the largest force in parliament, the center-left Democratic Party; its head, Pier Luigi Bersani, a former communist, resigned after his own allies had rejected his candidates for President. On Saturday, Parliament reelected President Giorgio Napolitano for an unprecedented second 7-year term. The office was largely ceremonial, but he could dissolve Parliament and call for new elections.

“Cunning coup d’état,” a furious Beppe Grillo called it in an interview. “The political class is fighting for survival,” he said. His anti-establishment 5-Star Movement that had garnered 25.6% of the popular vote in February has refused to form a coalition with either of the two major groups – and brought the political machinery to a clattering halt.

“Those wanting to prevent change are willing to do anything,” he griped on his blog. “They are desperate. Four people, Napolitano, Bersani, Berlusconi, and Monti, met in a living room and decided to keep Napolitano at the Quirinal….”

They’d ganged up on him. Yet, he was confident that his movement could bring down the corrupt political machinery. “We don’t sabotage anything,” he told the Bild. “The parties sabotage themselves.” In September or October, the government would “run out of money” and would have difficulties paying pensions and wages. The system would crash. “We’re experiencing a historic fracture: the established parties are in the process of disappearing,” he said. “It’s the birth of new movements like mine that come from below.”

On Wednesday, the machinery lurched forward again; Napolitano nominated a prime minister: Enrico Letta, deputy head of the Democratic Party (PD). He is also tied to Silvio Berlusconi’s People of Freedom Party (PdL) through his uncle, Gianni Letta, who has been Berlusconi’s chief-of-staff for 10 years.

Letta was “the only possible solution,” Napolitano explained. He’d be the only guy who could rally “a broad convergence of the political forces that can assure a majority in both houses.” Outgoing Prime Minister Mario Monti was on board. Letta would “be able to consolidate Italy’s international credibility,” he said.

Letta announced that he’d meet with the political leaders – not including Grillo – to discuss the “fragile and unprecedented” situation. Once he’s confident that he has the backing to form a government, he’ll accept the nomination and present the ministers for his cabinet. A vote of confidence in both houses of Parliament will seal the deal. His goal was to build support for the political class that he said “has lost all credibility.”

Grillo, as he was watching his movement getting run over by the political machinery, lashed out on his blog: “In Rome, they are sharing the spoils and the armchairs of the Second Republic. Meanwhile, the economy can’t wait. Every minute, a company shuts down. By this fall, we could get to the point of no return.” One of his top priorities was the plight of small and medium-size enterprises (SME) – the core of Italy’s industry.

The entire fabric of the environment for SMEs is disintegrating like a massive spider web whose silken threads are breaking one by one until it’s completely destroyed. Without this network of businesses, Italy is finished. That’s what supports public finances…. They are asking us to help them survive.

He blamed austerity policies that have jacked up taxes on individuals, companies, and consumption. “A suicidal position that is transforming the country into a desert.” Objective of these policies: “maintain the current privileges… and elevate banks and finance to the top of the pyramid, instead of production.”

His solutions: First, abolition of the “absurd tax on employment,” where “the more people a business hires and the more it borrows in order to grow, the more it is taxed.” Second, a change in when businesses have to pay the value-added tax. And third, “the immediate payment of about €120 billion” that the government and public entities owe the private sector.

The government’s refusal to pay suppliers violates EU rules. But the EU has soft-pedaled it; payment of arrears would not only force Italy to sell a truckload of bonds when there might not be a lot of demand, but it would also raise the official deficit beyond the 3% of GDP allowed under the Maastricht Treaty. Thanks to cash accounting for government spending, Italy has achieved its austerity goals by not paying it suppliers. And it’s strangling them.

Grillo proposed to limit the payment delay to 60 days. Beyond that, the government would have to pay interest on the balance at a punitive rate, plus other “documented costs” caused by the excess delay. All three measures, Grillo wrote, would need to be approved by Parliament as soon as possible. “There’s no time left,” he pleaded.

But Italy’s political machinery kept lurching forward. Italian stocks rallied. Yields on government bonds plunged. Because what large international investors like is a political machinery, no matter how corrupt or inept, that keeps lurching forward – even if those who propose reasonable measures to resuscitate the core of the economy get run over.

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