Berlusconi’s exit won’t end the crisis

 
Allister Heath
ONE by one, they fall: the Eurozone’s poisonous, tarantula-like bite has just claimed its second major political scalp in under a week. Following days of intense pressure by global bond investors, who had lost confidence in his ability to turn around the Italian economy, Silvio Berlusconi was finally forced to announce that he would be standing down as Italy’s prime minister. The markets’ joy may yet be short-lived, however: the divorce has yet to actually happen and could be very messy. But this does seem to be the end of the line for Berlusconi, a billionaire media magnate who singularly failed to reform his nation and thus condemned it to years of stagnation. He will not be missed.

Berlusconi’s ridiculous shenanigans with young women provided lots of good copy (and pictures) for us journalists; but it sent out a terrible message at a time when economic crisis and possibly catastrophe required a clear-headed and determined leadership. The only thing that can be said in Berlusconi’s defence is that he faced extreme pressure from vested interests resistant to change – in 2002, Marco Biagi, an academic adviser to Berlusconi, was murdered by members of the Leninist group New Red Brigades because he supported freeing up the labour market. But a better leader would have soldiered on and delivered the change he promised; instead he put hedonism and political survival ahead of national interest.

The problem is that nobody knows what will happen next. There is no guarantee that another government would be any better than Berlusconi’s. Yields on Italian bonds won’t collapse any time soon and could go on rising. The same is true of Greece. Since the beginning of last year, $63.5bn of deposits have been pulled out of Greek banks and moved abroad or under people’s mattresses. A fifth to a third of this capital flight – a giant, inexorable bank run – took place in the last two months alone. It now seems as if former European Central Bank vice president Lucas Papademos will be named as head of an interim Greek government; but he will most likely be almost as ineffective as his predecessor.

On balance, yesterday was a bad day for global stability, world prosperity and the prospects for peace. If anything, Berlusconi’s welcome demise was merely a sideshow to the confirmation by the United Nations that Iran is working to obtain nuclear arms. It was the first time the UN’s agency – the International Atomic Energy Agency (IAEA) – went that far; its report is as devastating as it is worrying. It contains a huge amount of detail, including a 13-page annex describing in great detail years of Iranian research with explosives and computer-based simulations of the kind that clearly suggests work on nuclear weapons. The report says that Iran has been trying to buy high speed electronic switches and spark gaps for detonators, neutron sources, radiation detection and measuring equipment and has conducted high-scale explosive experiments. It has produced 4,922 kg of low-enriched uranium since 2007, which enriched further would be enough for several bombs.

This is the last thing anybody needs: the Eurozone is in existential crisis; Iran is trying to build nuclear weapons that could trigger a disastrous war in the Middle East and beyond. It’s not all bad – the US economy is improving, many companies are delivering great profits – but only a fool would deny the world is in a very precarious place.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath