ITALY (3)

The technocratic Government under Mario Monti, which was installed shortly after my last post on Italy, gave way to an election on 24 and 25 February this year. Unfortunately, this produced deadlock. The main left of centre grouping won a majority in the lower house, the Chamber of Deputies, thanks mainly to a bonus of seats given to the party with the best showing (which was a mere 29.5%). However, that same grouping failed to win a majority in the upper house, the Senate. Unlike in other countries (the U.K., for example) the two houses have equal weight, so you need a majority in both in order to be able to govern.

Adding to the impasse, voters did two further things. First, they decisively rejected Mr. Monti's party, relegating it to fourth place, with 10%. He may well have stabilised the economy and started on the path to reform, but he also brought hardship and austerity in his wake, which was not popular. Secondly, more than a quarter of all votes went to the comedian Beppe Grillo's Five Star Movement, which wants to do away with all politicians and replace government with direct democracy through the use of referenda. Since the left didn't want to do a grand bargain with Silvio Berlusconi's right of centre coalition, which came second, Mr. Grillo didn't want to do a deal with anybody, and Mr. Monti had few votes, the result was no Government.

This went on for more than two months, despite repeated efforts by the outgoing President Napolitano to forge a consensus. The election in April of a new President (chosen in Italy by the two houses of Parliament, plus some others, around 1,000 people in total) showed just how lacking that consensus was. After five rounds of voting had failed to produce someone who could command a simple majority, the 87-year old President reluctantly agreed to stand for a second 7-year term. Realising the situation was getting desperate, it then became possible for Enrico Letta finally to put together a cross-party team of Ministers a week ago.

Despite Mr. Monti's earlier efforts, Italy faces huge problems. Of the 34 members of the OECD, the club of developed countries, only Italy had negative GDP annual growth per person between 2000 and 2011 (as a comparison, the U.K. had just over 1% pa, Denmark had the third lowest figure, well under 1% pa, with only Portugal between it and Italy, whereas Estonia and Slovakia were over 4% pa). Translated into plain English, Italy's citizens have been getting poorer for the past decade. Its public debt is the third largest in the world, and stands at almost 135% of GDP. True, Italians save a lot, and those GDP figures may well not take account of a lot of unrecorded economic activity. Nevertheless, the debt burden is high.

Big problems require radical changes. Taking almost three months to form a Government is not a promising start; Mr. Letta has his work cut out if he is to make an impression.

Walter Blotscher