THE GASPING CANARY:

Italy's Depressed Economy May Drag Down Prime Minister (Tracy Wilkinson, May 19, 2005, LA Times)

"Berlusconi is no longer able to do what he tried to do that last couple of years, blame [the economic downturn] on outside factors: the euro, international recession and so forth," said James Walston, a political scientist at Rome's American University.

"Italians aren't buying it anymore. He tells them he cut their taxes, but they know they are paying more taxes, and more for everything."

In a string of humiliating defeats, Berlusconi's center-right coalition last month lost elections in 12 of 14 regions. And last week, his coalition lost in most of the island of Sardinia, where Berlusconi owns numerous luxury villas.

Berlusconi was suddenly being discussed, on radio talk shows and in coffee bars, in the past tense. He was a lame duck, people said. Debated scenarios included early elections or a major restructuring of the center-right coalition to ease him out.

The beleaguered prime minister, a relative novice in politics when he first ran for office in the early '90s and someone the Bush administration regards today as its strongest ally in continental Europe, gained a bit of respite this week in local voting in Sicily, land of ancient Greek ruins and a still-active Mafia.

Umberto Scapagnini, Berlusconi's candidate — and personal physician — defied predictions and won election as mayor of Catania, one of the island's most important cities. Officials from Berlusconi's party, Forza Italia (Go, Italy), credited the fact that the prime minister flew to Sicily and stumped on Scapagnini's behalf.

"The numbers speak for themselves," Berlusconi said. "United, we can win."

Some saw the victory as Berlusconi's salvation. Italy's leading daily Corriere della Sera said he had faced and won the most important test of his leadership since taking office in 2001.

But Walston and other analysts believe the relief is temporary. There are no economic miracles on the horizon, they say, that can salvage the government ahead of general elections next spring.

Italy has been formally branded one of the worst performing economies in Europe — and the weakest link in the bloc of 12 nations that use the euro currency. Data released this month showed the country has plunged into recession for the second time in as many years, and Finance Minister Domenico Siniscalco was forced to slash the nation's 2005 growth forecast for the second time this quarter.

Most of Italy's economic problems are entrenched and predate Berlusconi. But he comes in for criticism for ignoring bad news and failing to act.

Saddled with the third-largest debt in the world, Italy relies heavily on family-controlled businesses (like Berlusconi's). It has failed to diversify into high-tech industries, maintaining traditional trades like clothing that are vulnerable to cheaper foreign competition. Important sectors including energy remain in the hands of inefficient state monopolies, and a very large public sector demands expensive pensions.

"Let's not amuse ourselves with words that are more or less technical — recession, stagnation, stagflation…. There is only one appropriate word to decipher our economic situation: disaster," Eugenio Scalfari, founder of La Repubblica newspaper, said in a front-page editorial.

If Italy is to be saved it won't be by a politician but a prophet.

Posted by Orrin Judd at May 19, 2005 9:32 AM