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Prodi's triumph(Economist.com Via Thomson Dialog NewsEdge)Exit polls suggest that Romano Prodi's centre-left coalition has won majorities over Silvio Berlusconi's centre-right government in both houses of the Italian parliament. But Mr Prodi may come to find that winning the election was the easy part; putting right a sick economy will be a much harder task THE campaign ahead of Italy's election on April 9th and 10th was long, hard and rancorous. But by the end of the second polling day the voters seemed to have swung behind the centre-left Union coalition led by Romano Prodi, and against Silvio Berlusconi's centre-right House of Liberties. The Union is expected to have a comfortable majority in the lower-house Chamber of Deputies and a smaller, but still workable, majority in the upper-house Senate. However, Mr Prodi will still depend on the backing of parties from the far left, making the immense task of reforming the economy even harder. Indeed, the poor state of the economy, which is now the slowest-growing large economy in Europe, makes it surprising that Mr Berlusconi's chances were not written off months ago. Yet although his campaign style and rhetoriccalling his opponents vampires and dickheads, claiming that China's Communists used to boil babies alive, likening himself to Napoleon and Jesus Christput off many, they may also have added to his populist appeal. So did attacks on him by the foreign media and by Italian businessmen. But his genial assertions that the economy was in fine fettle and his ability to put himself always at centre stage may in the end have rebounded on him. When the opposition managed to focus Italians' minds on the question of whether Mr Berlusconi's five-year premiership had made them richer, there could be only one answer. It is notable that Mr Berlusconi's own party, Forza Italia, seems to have lost more votes than any others on the centre-right. The focus now shifts to Mr Prodi. Unfortunately for him, the parties of the far left, especially the unreconstructed Communists led by Fausto Bertinotti, seem to have performed strongly in the election. His government will depend on their support. Mr Bertinotti has made no bones of his opposition to large-scale reforms. Indeed, he is keen to undo the modest Biagi labour-market reform introduced by the Berlusconi government to encourage the use of temporary and short-term contracts. Neither Mr Prodi nor his allies will have forgotten that it was Mr Bertinotti's withdrawal of support that brought down his previous centre-left government in 1998. In the campaign, Mr Prodi showed himself to be mild-mannered and uncharismatic compared with Mr Berlusconi, but he has some advantages going for him. He is an economics professor as well as a former prime minister. Between 1999 and 2004 he was president of the European Commission in Brussels. On both counts, he now understands the pressing need for economic reform and for more liberalisation across all of Europe. He has talked up the importance of more competition for Italy's overly protected economy. He has a newish central-bank governor, Mario Draghi, who is keen to prod the government towards deeper reforms. His choice of finance minister will be crucially important: a strong reformer in the same mould as Mr Draghi would be a good start. His plans to cut the social-security tax on labour by five percentage points, paying for this by raising taxes on capital income and inheritance, and cracking down on tax evasion, all seem a promising start. A hard task aheadYet the task may prove too much for the 66-year-old professor, even so. Italian GDP growth, which has averaged less than 1% a year over the past five years, has all but stalled again, as has productivity growth. The competitiveness of Italy's industry has declined sharply since it joined Europe's single currency, the euro. Italy seems uniquely vulnerable to competition from China, since it is strong in precisely those industriestextiles, shoes and white goodsthat China is attacking. To cap it all, the public finances are a mess: the budget deficit stands at over 4% and the public debt at 106% of GDP, and both are rising. There is thus little scope for using fiscal policy to sweeten the pill of broader economic reform. And there is always Mr Bertinotti, who is against both reform and further privatisation. Mr Prodi's record, in both Rome and Brussels, does not suggest that he will be a forceful and tough-minded leader who is willing and able to ride roughshod over opposition. In any case, his agenda for the next few months will be impossibly full. The first task of the Italian parliament is to elect a new president to replace Carlo Azeglio Ciampi, whose term is up in May (one front-runner is Giuliano Amato, another former centre-left prime minister). Until he is in place, the new prime minister may not be formally installed. That could take some weeks. Then there are crucial local elections in May. It may be several weeks before Mr Prodi's new government is officially formed, let alone ready to embark on controversial legislation. And by that time Italy's fiscal and competitive positions will have deteriorated further. Italy's economic problems are serious and deep-rooted. Mr Berlusconi had his chance to start the process of curing them in his five years in office, and he failed. But there is little sign that Italians who have voted for Mr Prodi to take his place have grasped how urgent it is to reform their economy. The next few years could easily see the country continuing to decline. |