Berlusconi conviction throws Italy into flux

Italy’s fragile coalition government, already struggling to contain deep divisions over tax and economic policy, woke up to a whole set of new problems yesterday after Silvio Berlusconi’s conviction for tax fraud was upheld by the supreme court.

Berlusconi conviction throws Italy into flux

Just three months after centre-left prime minister Enrico Letta took office at the head of an uneasy alliance with Berlusconi’s People of Freedom party (PDL), Italy, the eurozone’s third-largest economy, is again mired in uncertainty.

Letta repeated that Italy must have a stable government, saying the last thing it needs is to be worn down by partisan battles.

But everything hangs on the unpredictable reaction of Berlusconi, aged 76.

The billionaire and his supporters have reacted angrily to his conviction and prison term, the first definitive sentence he has received in dozens of trials during his two decades in politics.

While he is unlikely to spend any time in jail due to his age, the verdict was an unprecedented blow and he could lose his seat in parliament within weeks, with a vote on expelling him from the senate likely in September.

He has declared he will continue his political activities under the “Forza Italia” (Go Italy!) name of his first party and press for a reform of the justice system, with speculation growing that his daughter Marina may succeed him as party leader.

So far he has given no indication of wishing to bring the government down and pitch Italy into fresh elections, but the already dim prospects of significant reforms to revive Italy’s stagnant economy and cut its massive debt have receded further.

Agreement over thorny issues such as privatisations due in the autumn, or the much-disputed IMU property tax which Berlusconi wants to scrap but which would blow a hole in already strained public finances, will be difficult.

“It depends on the PDL,” said Stefano Fassina, the deputy economy minister from Letta’s centre-left Democratic Party (PD).

“It’s not something which can be settled in the next few hours but over the next few weeks, we’ll have to settle the IMU issue and on an issue like this, it can’t just be about Berlusconi’s personal interests,” he said.

Problems just as serious could also come from Fassina’s own fractious camp, with many in the centre-left unhappy at the prospect of remaining in alliance with a convicted tax evader. To add to the problems facing Letta, Matteo Renzi, the ambitious young mayor of Florence, is widely expected to mount a bid to lead the party.

Letta himself said that the situation was “politically very delicate” and called on all sides to show responsibility in the interests of the country. He acknowledged there were limits to what could be accepted.

“I don’t consider that continuing at any cost is necessarily in the interests of the country,” he said.

For all the drama surrounding the sentence, financial markets have shrugged off the ruling at least for now, encouraged by the ECB’s guarantee to backstop countries that ran into difficulty on the bond markets. But the calm could change if prolonged political instability fuelled doubts about Italy’s strained public finances and created the kind of pressure that brought down Berlusconi’s last government.

With Italy’s stagnant economy showing the first faint signs of improvement after two years of recession, it can ill afford months of debilitating stalemate.

President Giorgio Napolitano, who would have to decide whether to call new elections if the coalition fell apart, has urged calm, saying the country needed “serenity and cohesion”.

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