Italian Government Loses Reform Votes

The government of Silvio Berlusconi took a double blow to the chin last week as the opposition defeated it in two parliamentary votes on the future regulation of Italian financial entities. The government claims the opposition is preventing needed reformed from being passed after the meltdown at Parmalat. Mr. Berlusconi never has had a happy relationship with law enforcement, and this may explain why is government is on the wrong end of both votes.

In the first instance, the government lost on a proposal to give life tenure to the country's head of its central bank. Instead, the opposition pushed for a fixed term, likely to wind up being from 5-8 years. The political power grab is obvious. If Mr. Berlusconi, who doubles as the richest media magnate in Italy, can appoint a pal for life to the job of running the central bank, his power will last long after someone else is Prime Minister of Italy. For a man who has been tried, and surprisingly acquitted, for bribery and such, Mr. Berlusconi knows the power of having influence with the regulators.

The second vote was also a defeat for the PM's ambitions. The control of competition in the Italian banking sector was stripped from the Bank of Italy and given over to the anti-trust authorities. This is a prudent move because it prevents the revolving door between the public and private sector from undermining competition in Italian banking.

Unfortunately, the votes are not binding, and the government will be able to rewrite the legislation to salvage its position. However, it should take a step back and ask itself just what is best for the markets. The protection of investors and restoration of confidence to the market is the aim, but it doesn't seem to be doing that.

Maurizio Sella, who is the boss of the Italian Banking association, backs the government. That is usually a bad sign. He said to the Financial Times “The governor's term of office and the transfer of competences from one authority to another are areas of confrontation that don't address the hear of the matter.” Quite the contrary. Nothing will restore market confidence as much as knowing that the referees are impartial and have limited tenure.

© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.

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