Silvio's gone: is Italy missing him?

When he waved goodbye in April, Berlusconi left the public finances in terrible shape. Prodi & Co mu

It is 8am on a magnificently sunny Tuesday, and out in the Roman Campagna I have a choice of traffic jam. To my right, a long line of motionless vehicles stretches down the Via Ardeatina and past the Sanctuary of the Madonna of Divine Love, a religious shrine whose evergreen popularity belies the notion that Italian Christianity is in decline.

To my left, an even longer line of cars and trucks extends past Rome's ring road and snakes forward, as I will discover on a bus over the next two hours and 45 minutes, all the way to the Church of Domine Quo Vadis, near the old city walls. The Quo Vadis church is built on the spot where St Peter is said to have asked Jesus: "Domine, quo vadis?" ("Lord, where are you going?"), to which Jesus replied: "I am going to Rome to be crucified again." Let's just say that I know the feeling.

In Rome, paradise turns to hell every Sep tember at the moment of the rientro, when vast numbers of people simultaneously return to work after their summer holidays, clogging up every road. This year, my Italian neighbours seem almost as fed up as I am, though more eloquent in their exasperation.

Thanks to the gridlock, children and teachers arrive late at school; shopping becomes a major expedition; it takes all morning to get to work; appointments and trips are missed or cancelled; tempers fray; accidents happen: life is snarled up in a hundred ways. Apart from early January, when everyone mysteriously disappears to the mountains, and the occasional public holiday, this pattern will continue until next August.

The cost of such inefficiency to the Italian economy is incalculable (though a professor in Bologna tells me that Italy has the most decrepit road and railway system in western Europe). For inhabitants of Rome, this lovable and in furiating jewel of western civilisation, it is little consolation to know that up in glamorous Milan or down in turbulent Naples the situation is much the same.

The chances that Italy will modernise its tran sport network over the course of the current legislature, which is due to sit until April 2011, appear slim. Under Romano Prodi, who defeated Silvio Berlusconi in last April's general election and replaced him as prime minister, public investment is being cut back, not expanded.

If this seems strange for a centre-left government that includes communists, socialists and others with an appetite for state expenditure, there is a simple explanation. Berlusconi, the billionaire whose entrepreneurial genius was supposed to transform the Italian economy, left the public finances in terrible shape from the preceding five years that he stayed in power.

This wasn't, to say the least, what a centre-right premier and self-declared admirer of Margaret Thatcher was supposed to do. But now Prodi and his team must clean up Berlusconi's mess - and with only a threadbare parliamentary majority to help them. It is not unlike the crisis that beset Harold Wilson's Labour government as soon as it took over from the Tories in 1964.

As Giuseppe Fioroni, Prodi's education minister, put it this month: "We all know that we must try and reduce the huge deficit inherited from the previous government, and everyone will have to do their bit to this end. As a doctor, I'm used to working with 'cuts'!" A feeble joke, but we got the point.

This year's budget deficit will be about 4 per cent of gross domestic product, which is unacceptably high for international financial markets, the European Central Bank (ECB) and the European Commission. Even more shocking is Italy's public debt: at more than 107 per cent of GDP, it is bigger than Italy's entire annual output of goods and services. Tommaso Padoa-Schioppa, Prodi's finance minister, says things weren't this bad even in 1992 - and as a non-party technocrat and former ECB executive board member, he tells it straight.

The Prodi government is therefore pushing a 2007 budget through parliament that will cut spending by ?30bn, principally in areas such as healthcare, local government and public sector wages. It really has little choice.

When Padoa-Schioppa modestly scaled back the cuts - they were originally planned to total ?35bn - the howls of outrage in financial circles were so loud that one could have been forgiven for thinking that he was proposing a beanfeast rather than a year of austerity. Even his latest, less severe measures may not help Italy avoid a move by the credit ratings agencies to downgrade the country's sovereign debt later this year.

Prodi's dilemma is that his coalition government depends on left-wing support, but Italy cannot spend its way out of the trouble caused by decades of state profligacy. Nor can it escape the implications of its membership of the 12-nation euro currency area. Any wobble in fiscal policy may be punished in the financial markets by an increase in the premium demanded by investors for owning Italian government bonds.

Worse still, Italy's average economic growth rate is among the lowest of all developed nations. Growth has fallen steadily since the "economic miracle" of 1958-63, when it hit 6.6 per cent a year, and now it is probably not much more than 1 per cent. Given the astronomical cost of servicing the national debt, it is easy to see why such paltry growth is insufficient to permit large-scale investment in infrastructure, education and the health sector. And Italy cannot count on a young and expanding workforce: according to the Rome-based National Institute of Statistics, the number of Italians over 60 will rise from 14.7 million today to 17.5 million in 2016 and 19.2 million in 2026, or about one in every three people.

The woes that afflict the Italian economy are deep-rooted. There are too few high-tech businesses and too many small companies that fail to invest in research. Setting up a business is too complicated, organised crime remains a blight, and the lack of a decent transport network is a national disgrace. It would be unreasonable to expect Prodi to put everything right in one term of office, especially as even some of his allies suspect he won't last until the end of 2007. But then, where can he make a difference?

One answer, nebulous though it sounds, lies in the quality of Italian public life. Berlusconi's rule was marked by a football match-fixing scandal, a brazen attempt by the former governor of Italy's Central Bank to stop foreign banks buying Italian banks, a multibillion-euro fraud at the Parmalat food company, and amnesties for those doing illegal construction work.

Berlusconi's friends in parliament passed laws to help him in his war with the Italian judiciary. In 2004, Marcello Dell'Utri, his former business associate, was sentenced to nine years in prison for collusion with the Mafia; the previous year, Cesare Previti, a Berlusconi lawyer, was jailed for corruption (both men maintain their innocence). Things reached a low point late last year when, just four months before the election, Berlusconi's government hastily changed the electoral system to give itself a better chance of winning.

All this wasn't entirely Berlusconi's fault, but Prodi surely has a point when he says that, under his predecessor, Italy's image suffered disastrously. Since April, public life has seemed quieter, more normal; duller, perhaps, but also more dignified. Prodi will never do what Berlusconi did in July 2003 and tell a German member of the European Parliament in a public speech that he would be perfect to star in a film as a Nazi concentration-camp guard.

A sensible country

One reason why Prodi was keen for Italy to lead the expanded United Nations peacekeeping mission in Lebanon is that he sees the operation as a way to show that Italy is once more behaving like a sensible country on the world stage. Italy's withdrawal from Iraq, balanced by its continued contribution to Nato operations in Afghanistan, serves the same purpose.

It also repositions Italian diplomacy more com fortably between the United States, still an ally despite friction over the Iraq war, and the continental European mainstream. Berlusconi's excitable pro-Americanism, and his quixotic effort to be best buddies with Russia's Vladimir Putin (as well as Tony Blair), were a deliberate departure from Italy's foreign-policy traditions, but often looked more like a theatrical spectacle than a rational pursuit of the national interest.

So, Prodi is making a difference - but some Italian problems just never go away. As have all Italian governments since the 1990s, Prodi's is struggling with the question of what to do with Alitalia, the loss-making national airline. Pensions reform, university reform, reform of the judicial system and the fight against organised crime are all perennial headaches besides.

It would be tempting to say that Italy's biggest problem of all is the economy, but this month, there was a 24-hour strike on public transport all over Italy. Che confusione - what a mess! If ever Prodi can do something about this, he will have my gratitude, and that of every Italian stuck in his or her daily hell on the Via Ardeatina.

Tony Barber is Rome correspondent for the Financial Times