Banks, Church and government

Son Adam, who spent six of his first eleven years living in Italy, suggested in a Tweet:

Someone needs to do the “no, Italy is actually a healthy, functioning democracy” slatepitch.

That’s because I had suggested something along those lines at dinner Thursday night.  He’s right.  And I guess I’m the guy to do it.

I served in Italy as an American diplomat 1977-81 and 1987-93, leaving Rome as Charge’ d’affaires ad interim.  That means I was a cog in the diplomatic apparatus that prevented the Italian Communist party from coming to power–even as a junior coalition member.  But the policy was already fraying when I got to Italy as science counselor in 1977 and joined the cultural and labor attache’s in a palazzo revolt.  We could not do our respective jobs without contacts with Communists, which were still reserved for a single political officer within the Embassy.

The revolt was successful in part:  two of us were authorized to establish contacts with the Communists.  I began talking regularly with the party secretary’s brother, Giovanni Berlinguer.   The cultural attache’ (and the Ambassador in secret) started talking with Giorgio Napolitano, now finishing up with distinction his mandate as President of the Republic.

Back in Rome when the Berlin wall fell in 1989, I became deputy chief of mission in 1990 and asked for Washington’s permission to lift all restrictions on the Communist party.  The first request was denied, but by 1991 it had been approved.  For the first time since World War II, Italy could choose its governments freely without endangering its position within NATO and in Washington.

There ensued more than 20 years of bizarre politics.  The left came to power several times to fix the nation’s budget problems, relying in part on competent and tough-minded technocrats.  Then Silvio Berlusconi, a populist right winger who captured the imagination of Italy’s many small businessmen, would come to power and end the tough fiscal policies, which naturally had made the left less than well-liked.  The net result was a lengthy period of economic stagnation, with Italy’s debt reaching 120% of GDP.  Mario Monti, the current prime minister, is the latest in the line of technocrats expected to do the right thing, even though it is not popular.

Monti is struggling in the polls with the buffoonish Berlusconi and Beppe Grillo, a real live comedian whose iconoclasm brings Italians into the piazza.  The left, associated with fiscal probity, had been sliding (but polls are prohibited in the final two weeks of the campaign).  Italians have had enough of taxes and austerity.  They want hard-edged cheer (Grillo is good at that) and growth (which Berlusconi promises but never delivers).

The Italian electoral system is no longer the one that produced revolving door governments during the Cold War.  Governments now tend to last a few years.  The rules in the lower house favor whichever party gets the largest number of seats with a “premium” of additional seats.  But the system in the Senate is different, leading to the possibility of a divided parliament.  The European and American press are in a bit of a panic about this, worrying that Berlusconi might return to Palazzo Chigi or that there will be a hung parliament.

But let’s take a step back:  what we’ve got here is a free election, if not a fair one since Berlusconi controls most of the private media in the country (and until he left the prime ministry most of the public media as well).  Foreigners are certainly interested and even trying to influence the outcome, but no one has a veto.  It is a virtue and a privilege to meet financial difficulty through democratic means.  I’ll bet Italy manages it as well as Washington, where we already have a divided legislature.  Next Friday’s sequester, if it is triggered, will not crown American democracy with glory.

Also concerning are the scandals in two of Italy’s most distinguished institutions:  the world’s oldest bank, Monte dei Paschi di Siena (MPS), and its oldest autocracy, the Vatican.  MPS is in serious difficulty, having concealed important data from its supervisors at the Bank of Italy (which then had to provide a big secret loan to tide MPS over).  The Vatican faces so far unsubstantiated charges that it harbors a cabal of homosexual cardinals, news of which might be implicated in the Pope’s resignation.

A run on Italian banks would be a really serious problem, one that could once again shake the Eurozone to its core and end the slow normalization that has been occurring in European financial markets.  It is far too early to imagine where the Vatican scandal may lead, but at the very least the next Pope will have a major rehabilitation job to do.  Banks, Church and government in Italy are all facing serious challenges.  I for one am pleased that democratic institutions will be the means by which Italians come to terms with them.