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In Favor of Italy's Berlusconi Resigning? Be Careful What You Wish For

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Berlusconi may be a slippery character, but the alternative could mean a drying up of tax receipts, capital flight, and a run on the banks in a country already on the edge of insolvency.

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Yesterday the media was aflutter with the idea that Italian Prime Minister Silvio Berlusconi was on the verge of resigning. The tone of the reporting made it sound like, if such an event were to come to pass, all of Europe's problems would instantaneously disappear.

Now I can appreciate the personal dislike for Mr. Berlusconi; after all a man in his 70s and in his position of authority has no business partying with girls a third his age. But in the enthusiasm of seeing a rather egocentric and controversial leader flounder, the consequences of the fall of his government are being at best ignored and more often distorted.

If Berlusconi resigns, the consensus seems to be that a "technical government" can step in, implement the reforms required by the European Union, and reverse the growing credit crunch affecting Italian bonds. This is, in my humble opinion, complete and utter nonsense. After 10 years out of office, the opposition bloc will do its darn best to regain power through snap elections. And if the center-left were to win, their agenda would consist of the only thing they have known since 1945: increasing taxes on the rich and redistributing the money for their own benefit. There is nothing further from the mindset of Berlusconi's opponents than the concept of fiscal restraint.

But even assuming a "technical government" is installed for a few months, it could cause even more damage than a center-left regime. Just ask any Italian who had a bank account – any bank account – on July 11, 1992, and who woke up to find that 0.6% of its balance had been seized overnight by Executive Order. The stunt came courtesy of then Prime Minister Giuliano Amato, a leader of the Socialist party under whom many of the current slate of left-of-center politicians were trained and indoctrinated. And before anybody begins to doubt that such a fiscal maneuver won't happen again, only Italians who believe in unicorns are dismissing the talk that this time the levy will amount to 2% of account balances above €100,000.

I know many readers will view the above as a piece of conservative ranting, and I will proudly confess to that. But there is a very real financial horror story embedded in the policies proposed by the current opposition bloc. Just as it happened in the early to mid-'70s, tax increases, drive-by account raids, and most of all the feelings of vengeance accumulated by the left over their time spent in political irrelevance, are likely to scare capital en masse out of Italian financial institutions just at a time when these banks are least capable of withstanding a run on their deposits.

Furthermore, it should never be forgotten that Italians have raised tax evasion to an art form, and on that front there is nothing that can sharpen their ingenuity more than the threat of seeing their wealth and income being seized by the Politburo and/or the cadre of prosecutors and judges (under the Italian legal system, prosecutors and judges are the same people who merely trade roles among themselves depending on the political expediency of the case) who use their robes as extortion weapons that the Mafia can only envy.

So before the world markets get too giddy over the downfall of an admittedly slippery character, they might want to be careful of what they are wishing for -- unless a drying up of tax receipts, capital flight, and a run on the banks are part of the stabilization program for a country already on the edge of insolvency.

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