Electoral reform tops concerns as Italy seeks new government

Waning tolerance for chronic instability has thrust a new electoral law to the top of the agenda as a leading Italian politician tries to form an interim government in the wake of Romano Prodi's fall.

With record-low economic growth at 1.9 percent, mounting inflation, and stagnating wages, Italians are pressing for a governmental hand with more staying power.

It is unclear whether a caretaker government could master enough support to pass the required vote of confidence in both chambers. If Senate speaker Franco Marini –appointed by President Napolitano to lead "explorative talks" that started Thursday – fails to form a viable government, elections will soon be held under the present electoral system. That setup is largely credited with creating the political instability that incapacitated the Prodi government.

"Chances are high that [Mr. Marini] will meet broad obstructionism and will end up empty-handed," says Marco Tarchi, who teaches political science at the University of Florence.

After former Prime Minister Prodi resigned late last week, Mr. Napolitano had the option of immediately calling snap elections or appointing a technocratic government. Conservatives were dismayed that Napolitano resolved to choose the latter option.

Silvio Berlusconi, the opposition leader, was eager to lead his coalition to the polls, where he expected to ride the wave of unpopularity that hit the Prodi government in the past few months. Although late last year Mr. Berlusconi acknowledged the need to reform the electoral law his own government put forward in 2005, he is unlikely to throw his support behind a weak caretaker government and postpone national elections that he could now win.

When the Prodi government realized its leader no longer had a majority in the Senate, "it could have sought a compromise with the conservatives," says Mr .Tarchi. "[Mr. Prodi] could have told Berlusconi, 'Let's work together on the electoral law and then we'll go to the polls.' But he didn't."

Now, Berlusconi's center-right bloc no longer appears open to negotiations. Berlusconi's coalition is leading national polls by an 8- to 12-percent margin, and "more than 1 in 3 Italians think very badly of Prodi's work," Italian pollster Renato Mannheimer wrote on the Corriere della Sera.

But how did the once-popular Prodi turn political pariah in as little as six months in office?

Some analysts say that he had his hands tied by a vast and riotous coalition that would not allow him to pass even modest reforms without Byzantine give-and-take negotiations. He needed every one of his numerous and demanding allies to win elections in 2006 under the conditions imposed by Berlusconi's 2005 law.

Others, however, say that while Prodi had one hand tied by his big coalition, he used the free hand to dig his own political grave.

Although the Prodi government was too fragile to attempt broad reforms, experts argue, many of its policies had an impact – and an unpleasant one – for many voters.

"[Prodi] and [finance minister] Tommaso Padoa-Schioppa hit hard on tax evaders to increase public revenues, but kept refusing to lessen the fiscal burden" on those who paid taxes, says Tarchi.

Their effort to reduce the country's soaring public deficit, which also included a sharp and generalized increase in taxes, was largely successful.

Early estimates put the 2006 public deficit "well below 3.3 percent of GDP," according to the European Commission for Economic and Monetary Affairs. That's down by at least 1 percent compared with 2005 levels.

Even after the state budget gap started shrinking noticeably, however, the government denied a generalized fiscal relief, says Tarchi, a decision that "did not thrill Italy's middle class, even in the center-left."

"Fiscal accounts improved sharply. Still, most of the improvement came from the revenue side; there were no corrections in public spending," adds Luigi Speranza, a senior economist at BNP Paribas.

Confronted with sweeping Chinese competition in the textile sector, explains Mr. Speranza, Italy has been unable to reinvest in other more promising fields, such as high-tech.

Part of the problem lies in the country's legal and bureaucratic jungle, which makes it difficult for Italian entrepreneurs to transform old businesses or start new ones. At the same time, the country is in dire need of economic incentives for research and development.

But the mother of all reforms is electoral reform. It is still unclear whether the new electoral law will see light under the aegis of the new interim government.

But "this is the big knot we need to untangle," says Speranza. "The labor-market shake-up we need requires a strong government."