Hot spots: Italy.(International Section)

The Center-Right government of Prime Minister Silvio Berlusconi must have been at least somewhat unsettled by the way in which the Socialists in Spain recently managed to boot out the incumbent. Partido Popular. It has seen its own popularity slump since 2001, when the PM secured the biggest parliamentary majority of any administration since WWII. The polls say that only about 22% of Italians would vote for Berlusconi's Forza Italia today, against 29% who favored it in 2001--and nation wide strikes late last month to protest pension reforms turned into demonstrations supporting much more general complaints about the performance of the economy.

The Italian economy has been doing quite badly, even by European standards. It stayed stagnant in the final quarter of last year, while Euroland as a whole showed growth of about 0.6%. Indications are that it remained in the doldrums in the first three months of 2004, so Italians are justified in wondering what happened to the economic miracle Sig. Berlusconi promised when he was elected. For his part, the embattled Prime Minister knows that the elections for local governments and for the European parliament, which are due to be held on June 12 and 13, will be, in many respects, a referendum on his administration's performance and a dry run for the next general elections, which are not due until May 2006.

So convinced is Berlusconi that fulfilling his tax cut vow could make the difference--he seems prepared to stake his entire political future on this policy. He says that if by 2006 he has not cut the top income tax rate to 33% from the present 45% and replaced the five existing brackets with two (the second would be at the lowest current level, 23%) he will not even run in the election that year. He says that his government will outline plans for spending reductions intended to compensate for thee tax cuts no later than the beginning of May.

The trouble is, Italy has pretty much used up the one-off measures such as asset sales and tax amnesties on which it has relied up until now to keep the fiscal deficit in bounds. Berlusconi says that he has asked all government Ministries to propose a paring of their budgets that would cover between 50% and 70% of the anticipated revenue shortfalls, but it is difficult to imagine where such savings are supposed to come from, considering that Forza Italia has vowed it will not touch the healthcare, education, or security budgets or pare the salaries of civil servants.

Rather, it still plans to spend billions of euros on infrastructure projects that are intended to yank the economy out of its sluggishness. It may be recalled that the government at the end of 2001 committed itself to a ten-year program of such outlays, at an estimated total cost of EUR 126 billion. The scheme lists 220 public works projects, of which the most ambitious is a 3.3-kilometer bridge across the Messina Straits. Construction of this span is expected to begin next year and finish in 2011.

Berlusconi has vowed, that Italy will not follow the example of Germany and France and ...