13 May 2013. Italy has a new government. Unlike Belgium, which remained ungoverned for more than a year, and Greece, where two elections were necessary, the Italians managed what was least expected: a grand coalition between the center-left party Partito Democratico (PD), Silvio Berlusconi’s Popolo della Libertà (PDL) and Mario Monti’s technocrats. What kind of cabinet is it, how stable will it be and how effectively will it govern?

The circumstances of this government’s formation were not the best. The elections on 24^th of February yielded no clarity. The coalition negotiations between the PD and the protest movement M5S failed, as did the attempt to form a minority government. Finally, when the presidential election failed due to conflicts inside the PD, the old president was re-elected and pushed through a grand coalition, led by Enrico Letta.

A welcome change
Letta surprised everyone with an innovative and capable cabinet in which not only representatives of all factions are present but also women and ethnic minorities. After the Catholic church-supported Monti government, this is a welcome change especially since Italy has to solve more than its economic problems. On the agenda are women’s access to the employment market, the integration of immigrants, the approach to stem cell research, equality of homosexuals and data privacy.

More positive points for Letta include his almost tender age of 46 (at least by Italian standards) and his sheer normality, which stands in refreshing contrast to Berlusconi’s eccentric demeanor and Mario Monti’s robotic expertise.

No growth on credit
But Letta’s government will be judged by whether it will manage to put the economy back on track, and in this area the scope of action is narrow. Because of the EU’s new stability-and-growth package (Letta flew to Berlin on the day of his appointment) and a new amendment to the constitution calling for a balanced budget, the government cannot incur debt to push growth. All the parties have promised to refrain from tax increases. It looks like there is no way around spending cuts.

In this situation, any help is welcome. For example, the interest rate on Italian government bonds decreased not in the least because of the expansive monetary policy of the Japanese central bank. However, the Monti government’s experience has shown how big the challenges are: an annual savings of 30 billion euros are necessary to avoid tax increases, lower payroll taxes, scrap the hated taxation of homes, and provide for the unemployed. Monti’s technocrats have managed a third of these savings – but the three new governing parties have totally different priorities, which makes spending cuts even more difficult.

The need for compromise
Moreover, economic measures and budget cuts are just one part of the political struggles in Italy. Every party pursues its own interests with regard to institutional reforms (reducing the number of representatives, transformation of the senate into a federal house of parliament, reform of the electoral law, elimination of the administrative level of the provinces). The need to compromise will have an effect on economic policy. In addition, the viability of the Letta government also depends on the legal fate of Silvio Berlusconi, who was once more found guilty of tax fraud this week. What a coincidence: in the same week, the coalition parties were able to agree on presidents for all of the parliament’s commissions – except the commission responsible for the judicial system. Eventually, Berlusconi was able to establish his desired candidate. Whether his party will support the cabinet will probably depend on further, similar “compromises”. For now, one cannot count on progressive legislation with regard to representatives’ conflicts of interest or the ineligibility for public office of people found guilty of crimes.

Ultimately, the stability of the Letta government and the effectiveness of its economic policy will depend on two factors: Berlusconi’s legal interests and the unity of the Democratic Party, whose left wing may refuse further compromises and debt-cutting measures. If the cabinet fails for one of those reasons, the coalition parties might not survive the next wave of protest.

Photo: Photocase / HerrSpecht