The Italian prime minister just won a vote of confidence in Parliament. It surprises almost no one who lives in Italy that investors weren’t pleased. The associated Press has a great quote
The best signal that Italy could have sent to the markets would have been to boot Mr. Berlusconi out, but it has failed to do so, said Sony Kapoor, managing director of Re-Define an Economic Think Tank.
I promise you that this is a widespread although not universal view.
But the associated Press reporter just can’t face the fact that Berlusconi is “worse than you imagine possible even taking into account the fact that [he] is worse than you imagine possible” — Brad DeLong. That reporter describes his actions using the standard forms of political reporting (more rigid than a sonnet). This causes the reporter(s) to make a plainly false claim
“Italy is under pressure to come up with growth-promoting measures to avert being dragged into the widening European sovereign debt crisis.”
The opposite is true. Italy is under pressure to come up with deficit cutting measures which will slow growth but might allow Italy to escape from the widening European sovereign debt crisis.
The European policy debate is austerity vs stimulus. Berlusconi is on both sides. He has recently had parliament pass ruthless ruthless austerity measures which are, it pains me to say this, necessary* with investors demanding a risk premium of roughly 4%. But he also wants a stimulus bill. Because he has no understanding of limits or of the distinction between words and facts. His logic is if he wants growth then he wants a growth bill, that is “svilupo” which literally means development, but in practice means huge public construction contracts.
You will note that I didn’t quote Brad DeLong word for word. The reason is that he wrote about the Bush administration and it makes no sense to write about the Berlusconi government, because the second most important member of the cabinet — economy minister Giulio Tremonti — absolutely opposes Berlusconi’s policy proposals.
A crisis in the cabinet just doesn’t fit the normal forms of political reporting (which is unsuited to Italy and Israel and … other countries with names beginning with I).
It is also important that while both austerity and stimulus are on the agenda, they tie for second place after the perenial number one priority of changing laws so that Berlusconi isn’t sent to jail. I do mean this quite literally and am subject to criminal liability if I can’t prove my claim (it would be calumny and those of you who really have freedom of speech shouldn’t imagine that it really is protected here).
* It especially pains me to agree with Giulio Tremonti who makes Andrew Mellon look like a pinko softy (and also — relatively speaking — a stud muffin). His odd title minister for the economy is based on the obsolete Italian tradition of inflating the cabinet as well as the currency. Back when there were 5 coalition parties, it was necessary to divide up the position which would be held by the treasury minister in a normal country into three slices. The minister of the Treasury who controlled spending, minister of finance who collected revenues and the minister of the balance who kept watch on the two dangerous intellectuals (and carried the kidney from table to table). At least that nonsense is over. Tremonti has all three offices (in the same building where no cocaine pushers have entered for oh years now).