Italy’s tragic democracy

Marco Niada
23 August 2005

Italian democracy looks in its worst shape since 1945. Its entire institutional framework is in crisis. The saga that has unfolded in the last month in the Bank of Italy shows that the ruling class of this materially wealthy and socially modern country does not understand a basic truth: that Italy’s well-being depends on a sound free-market economy backed by independent institutions.

Antonio Fazio, governor of the Bank of Italy, is a pious Catholic who currently seems at ease more with eternal religious truths than with quotidian economic ethics. The primary accusation against him is that he broke the rules during a takeover battle between two medium-sized Italian banks, Antonveneta and BNL, each of which was the target of two foreign banks and long-term investors with significant shareholdings, the Dutch Abn Amro and the Spanish BBVA.

Also by Marco Niada in openDemocracy:

“Farewell Agnelli” (February 2003)

“Parmalat: Italian capitalism goes sour” (December 2003)

“Afghanistan: no time to lose” (April 2004)

Both foreign banks are sound and well-capitalised. A successful bid for Antonveneta and BNL would, according to Italian banking analysts, bring more efficiency and new products into the Italian market: a good deal for the country’s consumers and the bank’s customers.

Antonio Fazio is the referee, go-between, and arbitrator of all such banking deals in Italy. All the way through the negotiating process, he bought time to delay the foreign bids – time used by two rival Italian financial institutions, BPI and Unipol, to organise competing (and ultimately successful) takeover attempts.

Fazio’s “victory” was shortlived. It soon emerged that BPI, the Italian winner of the Antonveneta bid, had acted improperly by organising a group of investors that worked together – covertly and illegally – to raise money to support its bid. Some analysts say that BPI was technically bankrupt and was trying to takeover the three-times-larger Antonveneta in order to save itself. Gianpiero Fiorani, head of BPI, has been suspended for three months while magistrates pursue their investigations.

Fazio proclaims his propriety and refuses to resign. He shields behind the life mandate that a Bank of Italy governor can claim. Silvio Berlusconi, the prime minister – usually so quick to intervene in matters large and small – hasn’t put pressure on Fazio and gives every impression of being either impotent or an accomplice in the matter.

The case of Unipol, the insurance company which won the battle for four-times-larger BNL, is less controversial though still problematic: as an outcrop of the cooperative movement linked to Italy’s former communist party, it has no great banking experience.

There is a further oddity. Unipol’s head Giovanni Consorte is on the board of Hopa, a financial vehicle of the financier Chicco Gnutti who heavily supported the BPI bid for Antonveneta. The appearance of collaboration between the two Italian bids suggests a pantomime played to “stop the foreigners” – but at the price of two insane deals that might eventually bring ruin to everyone involved.

The imbroglio was in any case highly embarrassing for Fazio’s image of independence: the investigating magistrates’ phonetaps revealed that Gianpiero Fiorani had conversations with the governor's wife; she seemed to be reassuring him that her husband would favour his takeover bid for Antonveneta.

Berlusconi’s role

Meanwhile, BPI allies like real-estate tycoon Stefano Ricucci seemed from the phonetaps to be ready to prepare a takeover bid for the RCS media group (owner of Italy’s bestselling daily paper, Corriere della Sera) – one that Silvio Berlusconi seems to support. The more cynical observers think that the possibility of an electoral defeat in 2006 is pushing the prime minister to extend his already vast control of the Italian economy and media to maximise his bargaining position with any new government.

Berlusconi has denied vehemently that he backs the RCS bid, and urged a restriction on phonetaps. But on the saga as a whole, he seems less concerned to keep Fazio in place than to avoid replacing the discredited governor with someone even more unwelcome. Berlusconi’s multiple conflicts of interest fuel endless suspicion of his possible behind-the-scenes role.

Also on Silvio Berlusconi and Italian democracy in openDemocracy:

Sarah Pozzoli, “The fall and rise of Silvio Berlusconi” (April 2005)

Sarah Pozzoli, “Who rules Italy?” (June 2005)

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Berlusconi is the most visual symbol of the unhealthy intertwining of politics and economics in Italy. The impression is of a great confusion where family, friendship and tribal bonds prevail over a public interest which has no institution strong enough to defend it. The Bank of Italy used to be an exception: an institution of competence, probity and impartiality. Today, its reputation is in tatters.

A “big idea” of the Enlightenment was a balance of power between strong institutions (government, parliament, and judicuary) through which society’s energy could flow. In a democratic society, these institutions shape a nation-state’s direction and speed: without them, they are drowned in theocracy, stifled by tyranny or paralysed by warlordism. Institutions (and central banks can be added to the list) are, it could be said, referees enabling the game to be played in the fairest and most efficient way.

Italians today seem to favour the opposite: a desire to suppress the referee and play a game where each player decides the rules for himself, and seeks to cheat his adversaries in a way that makes the spectators forget what game is being played. The game is becoming more obnoxious, the poison is spreading, and the public is turning elsewhere. It is not just the the Bank of Italy that is in trouble, but at this stage the soundness of Italian democracy itself.

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