When worlds collide

Billionaire Prime Minister Silvio Berlusconi discovers that politics and his vast business empire make a poor mix

BRUCE WALLACE August 15 1994

When worlds collide

Billionaire Prime Minister Silvio Berlusconi discovers that politics and his vast business empire make a poor mix

BRUCE WALLACE August 15 1994

When worlds collide

Billionaire Prime Minister Silvio Berlusconi discovers that politics and his vast business empire make a poor mix




No matter what Silvio Berlusconi was thinking to himself as he addressed the Italian parliament last week, at least the flashy billionaire-cum-prime minister looked cool. On the streets outside Rome’s Chamber of Deputies, ancient, blackened cobblestones sizzled in an August heat wave that made even Italian style sag a little. Inside the oval chamber, tempers flared and the commessi, parliamentary ushers, kept an eye out for trouble—a brawl had erupted just a week before—as Berlusconi kicked off a debate about how to deal with the obvious conflict of interest between his gargantuan business empire and his role as prime minister. But Berlusconi ignored the heckling of hostile deputies and focused on his real audience: Italians watching at home on television, most still unsure whether to trust Berlusconi, and wondering if yet another government was about to fall.

So Berlusconi projected calm. His style remained sanguine. His blue cuffs stayed crisp. “Maybe I’m just an incurable optimist, but I see nothing black in the day which is drawing to a close,” he said, exuding confidence as opposition deputies jeered. Then, he smiled faintly. “I’ve said and I confirm that I intend to govern for a long time,” he told the country before pausing to add the qualifier, “but not at all costs.”

He never named his price, but that is the question Italians and their politicians will have to resolve soon enough: what to do when the prime minister owns three television networks, dozens of newspapers and magazines, and one of the country’s largest conglomerates of retail, real estate, financial and advertising companies with sales of about $10 billion last year and debts of another $4 billion. Can an independent management team truly be expected to run a teetering business empire without consulting its creator? Is it fair to force Berlusconi to sell Fininvest SpA, the group of companies that took him 30 years to amass? Can anyone even afford to buy it?

The extent of his holdings would be a challenge for any country to regulate. But in Italy, where there is not even an Italian word for “blind trust,” this is

brand new territory. And while the government searches for a solution, almost every law or decree it passes is tainted by the knowledge that a Berlusconi company somewhere, somehow, will be touched by it. He even owns AC Milan, Italy’s most successful soccer club.

The situation is complicated by the fact that four senior Fininvest executives are also under arrest while being investigated for allegedly bribing Italy’s tax police. For two years, Italian judges, led by the charismatic Antonio Di Pietro and armed with extraordinary powers to incarcerate suspects without trial while evidence is accumulated, have been uncovering a cancer of corruption throughout Italian political and business life (the scandal is popularly known as tangentopoli, or bribesville).

On July 29, police arrested Paolo Berlusconi, the prime minister’s brother, who is also a Fininvest executive, on

charges of paying $350,000 in bribes to tax police. And that same day, Bettino Craxi, a former prime minister and Silvio Berlusconi’s political mentor (he is also godfather to one of Berlusconi’s daughters) was sentenced in absentia to eightand-a-half years in jail for fraud. Craxi, who now represents the epitome of the corruption that was endemic in postwar Italian politics, remained at his villa in Tunis, refusing to return to Italy.

All this lands the scandal uncomfortably close to Berlusconi, 57, who was elected just last April promising to usher in a new era of honest dealing. Italy’s traditional conservative parties had been weakened by the bribery scandals, so Berlusconi, fearing that a leftist government might force him to divest himself of part of his empire, formed a new party, Forza Italia (Go Italy). He pledged to make Italy prosper just like Fininvest. He would solve Italy’s crushing debt-load without raising taxes, and instil an American-style free-market ethic in its workers and entrepreneurs. Enough Italians trusted him to allow Berlusconi to cobble together a majority in parliament in an alliance with two partners: remnants of the Fascist party, strongest in southern Italy, and the Northern League, which wants to loosen the grip of Rome’s bureaucracy on the richer north.

But after three months in office, Berlusconi increasingly looks, walks and talks like a politician from the bad old days. It certainly felt like the old Italy on July 14, when Berlusconi issued a decree allowing more than 500 corruption suspects to leave jail. He argues that the process of jailing people while under investigation is an abuse of power by the judges (their role is, in fact, similar to a Crown prosecutor). Berlusconi accused them of being leftwingers out to smear conservative politicians.

But the tangentopoli judges promptly

resigned, and public opinion overwhelmingly sided with the crusading Di Pietro rather than the neophyte prime minister. For one thing, Berlusconi’s motives appeared suspect. He issued the decree late at night, when the country was distracted in revelry over a comeback soccer victory by their World Cup squad. Public anger was stirred by the televised sight of disgraced politicians walking out of jail, such as ex-health minister Francesco De Lorenzo, who is accused of running a multimillion-dollar illegal traffic in pharmaceuticals (his co-conspirator, senior bureaucrat Danilo Poggilini, was caught with cash stashed in his

government office sofa cushions and gold bars in his wall safe).

The press dubbed the decree “Save the thieves,” and Berlusconi finally rescinded it. But as the noose around Fininvest executives tightened, many people questioned whether Berlusconi had been more concerned with heading off the investigation of his company than with protecting the rights of the accused. Berlusconi was behaving, said respected reformist politician Mario Segni, like the president of Fininvest, not the prime minister of Italy.

In fact, Berlusconi’s Forza Italia often seems to be little more than a subsidiary of Fininvest. The government’s polling is carried out by the marketing research arm of Fininvest. Gianni Letta, the undersecretary of cabinet, was Fininvest’s deputy chairman. The new defence minister, Cesare Preveti, is Berlusconi’s lawyer. A former anchorman at one of Berlusconi’s TV stations, Giuliano Ferrara, is now the government spokesman.

“Berlusconi should have used the unique opportunity the election gave him to show Italians that he had confidence in the system,” says Augusto Fantozzione, one of the country’s most prominent tax lawyers and an adviser to several past finance ministers. “But instead, he has appeared defensive from the beginning, appearing to be looking out for himself rather than the country. He should be showing Italians how to work harder, live better, be more European.”

That is what makes the early disillusionment with Berlusconi so frustrating. “You must not behave as the parties of the past,” gravel-voiced, finger-wagging Umberto Bossi, leader of the Northern League, warned Berlusconi during a parliamentary debate. “We must be a transition from the past to the future.” But Italians still do not know if Berlusconi represents true change. And if Italy really is evolving, is it moving towards the sophisticated European mainstream? Or is it being pulled deeper into the breast of corruption and backwardness that is its stereotypical, mafioso image?

A bank of television monitors provides a snapshot of the contradictions and problems of a Berlusconi government. It is 1 o’clock on a weekday afternoon in the control studio of Channel 5, Berlusconi’s first, and flagship, network, located in a low-rise building on the crest of a Roman hill overlooking the Colosseum. The first item is about Berlusconi’s speech in parliament the night before. “Berlusconi will govern on,” beams the headline over the intonations of announcer Emilio Carelli, who tells viewers that there is “no crisis.”

But on one of the television screens monitaring a competing state channel’s newscast, there is a long story airing about the newest allegations against Berlusconi: a Wall Street Journal article from the day before that questions his role in the controversial 1990 takeover of MGM/United Artists Communications by Italian financier Giancarlo Paretti. It is a complicated story involving letters of credit and an apparent reneging on the deal by Berlusconi, but the report explains it all with colorful graphics showing money flowing from one party to another. Berlusconi has maintained that he did nothing illegal, and dismissed the scandal as a non-story. Clearly, the producers of the network news on Channel 5 thought so too: there is no mention of the MGM/Berlusconi controversy on its 25minute-long newscast. “It is a difficult story for us to do in our situation,” said one Channel 5 producer with a smile.

Controlling television networks that reach 45 per cent of all Italian viewers is the most visible sign of Berlusconi’s conflict of interest. His critics argue that it is unhealthy for one person, let alone a prime minister, to exercise such extensive media control. But rather than bowing to pressure to sell at least part of the television empire, Berlusconi, in one of his first acts in office, alarmed Italians even more by demanding that the five directors of state television resign. Most Italians agree that the bloated state networks, which have as many viewers as Berlusconi’s channels, need culling, and that the existing board was

ill-suited to the task. But the notion of Berlusconi appointees running almost all of Italian television provoked an outcry, and has yet to be resolved.

Television also underscores the degree to which Berlusconi benefited from Italy’s old system. To establish his near-monopoly in private broadcasting, he cozied up to politicians like Craxi for favors—hardly the free-market Thatcherite approach he claims to want to bring to Italy. “Our old system was quite similar to a Soviet system: there was a very strong state presence in the econ-

omy,” says Finance Minister Giulio Tremonti. “Our capitalism was not so free.”

The new government has taken halting steps towards change. Tremonti, whose career was made outside government as a tax expert, is revising the tax code that is so complex that “we cannot tell exactly how many tax laws we have.” Simplifying the way Italians pay taxes would also curtail corruption, he says, because bribes were often the only way that companies could hope to comply with the myriad laws. And he wants to

allow local governments to collect taxes, which, he said, would curb the deficit by ending the practice of Rome alone collecting taxes and dispensing public money as the national government sees politically fit.

But Tremonti’s changes are hampered by the fact that his tax police force has been swept up in scandal: the charges against Paolo Berlusconi involve bribing officers of this force. The new wave of politicians may be trying to overhaul the system, but the old regime still has some bite. “I am frustrated because, while the Italian economy

is quite strong, the Italian image abroad is still of the prime minister’s brother in handcuffs,” says Giuseppe Roma, director of the respected CENSIS, a private foundation that conducts socioeconomic studies on the state of the nation. “If I’m a foreign investor, I’m not interested in the fact that medium-size businesses in northern Italy are turning big profits. I’m looking for a stable government.”

Distracted by his personal troubles, Berlusconi has put off tackling the toughest problems facing Italy. With the lowest birthrate in the Western world and an aging population already straining the pension system, pension reform is the key to any real attack on the national debt. But pension reform was not part of the budget passed last week before parliament recessed until the autumn. “What we need at this point,” sighed Roma, “is some quiet, regular government.”

“Look at this,” says Senator Roberto Lasagna, as he points to the incomplete wall charts showing who works for whom in the various departments of the environment ministry where he is the undersecretary. “I can’t even get the bureaucracy to tell me who works here. Explain to me why we have five departments but 13 director generals.

There is one director general I can’t even find. We think he is living in the United States, still drawing a salary.”

Everyone has stories about the Italian bureaucracy: phones that go unanswered all day, jobs for life, friends and lovers appointed to government posts. Most are not apocryphal. But Forza Italia politicians say they were still caught off guard by the extent of the corruption in the public service. ‘To an Italian bureau-

To Berlusconi, politics is like a mistress. He will love her, but he will never marry her.’

crat, a new minister is just a passing fad,” says Lasagna, a former senior executive with the advertising agency Saatchi & Saatchi, who quit last January to run Berlusconi’s campaign. “The structure was not made for change, but for continuity, and in many cases continuity among thieves. Their attitude is: touch us and we will effectively strike, we’ll wreck the economy. We naïvely thought that the wheels of state were rusty but firm, but they are not. To our horror, we found that they are broken, and the bureaucrats have hidden the steering wheel.”

This is a message that the new government has been trying to get out: everyone from bureaucrats to opposition critics and hostile journalists should step aside and let Forza Italia govern. But critics argue that Berlusconi is trying to run the country in the same authoritarian manner he used in boardrooms, and that he lacks a tolerance for any criticism. “He is a charmer, a guy who likes to be liked, and I don’t think he enjoys being attacked in the papers every day,” said one Western diplomat, who predicted that Berlusconi would be back in the private sector within six months. Indeed, Berlusconi told reporters

that he had considered quitting politics during the storm over his decree. ‘To Berlusconi, politics is like a mistress,” says one Italian businessman. “He will love her, but he will never marry her.”

As the latest turbulent week in Italian politics closed, there was no appetite to disband the government and call new elections. Northern League Leader Bossi may complain that Berlusconi’s election had bequeathed “a permanent conflict of interest” to the country, but Bossi has no desire to face the electorate again so quickly. They may come to hate the hard choices ahead but, for now, Italians clearly want this government to govern, and to bring honesty to the task. They want to know if a new order has truly arrived, or if it is to be business as usual.

That emotion was poignantly displayed last week as Italians buried Giovanni Spadolini, a former prime minister and elder statesman whose reputation remained unsullied throughout the deluge of scandals that washed over so much of the country’s political establishment. The current crop of government ministers walked past the assembled crowds in Rome’s historic district to no reaction. But when pallbearers carried Spadolini’s coffin into the Church of Santa Maria Sopra Minerva across from the Pantheon, with the setting sun casting an orange hue on the proceedings, applause rippled out from the crowd for an honest man.

Bettino Craxi did not attend. □