Wednesday, October 22, 2008

Two Types of Italians: those who work for Berlusconi and those who are about to

Sources: New York Times- Italy’s Crisis Has Premier Riding High, Urging Europe to Stay European; Financial Times- Italy Set to Curb Sovereign Wealth Funds

Millionaire Italian Prime Minister Silvio Berlusconi, 72, is known throughout the country for his play-boy antics and locker-room humor, qualities that Italians find both endearing and off-putting. But no matter their feelings about him, the common Italian saying may just be true as Berlusconi considers plans to bailout countless private companies with his own fortune, in addition to already controlling Italy’s billions in public funds. Berlusconi is the owner of the largest private broadcasting network in Italy, Mediaset, among other businesses in publishing, investment banking, and holdings. Despite his own companies taking a 40 percent loss over the last quarter, he is more confident than ever with his political power reaching the peak of his 15 years in public office. Berlusconi was elected by a wide margin last April on behalf of the People of Liberty, the leading center-right party.

While Bush and Putin have the lowest approval ratings ever as a result of the crisis, Berlusconi enjoys approval ratings at an all-time high of 62 percent. Strange, considering the economics of a country normally correlate to the government’s approval ratings. Left-wing opposition cites Berlisconi’s thumb on biased television propaganda as the reason for such high polls. Others credit his strong leadership in recent months; he pushed Parliament to pass some budget restructuring measures that provided liquidity early, before the brunt of the crisis hit, and encouraged Italians to invest in Italy’s largest gas companies, Eni and Enel. Apparently, such moves have reassured Italians that the government will support and protect them.

After Italy took a pro-bailout stance in European talks during the past few weeks, skeptics warned that his private fortune is too intertwined with the country’s economics. Berlisconi, as one of the wealthiest businessman in Italy and its Head of State, stands to benefit from a government or private bailout. If banks and businesses get bailed out from private sources, he makes money by buying up companies cheaply, including investment banks that have long prided themselves on maintaining independence from him. If the government intervenes, his prior investments will take a much weaker hit.

The possible establishment of sovereign funds to keep European companies in European hands has made EU headlines this week. Last week Berlisconi warned that the current state of the economy leaves Europe vulnerable to hostile investors from oil-rich countries in the Middle East including UAE’s Abu Dhabi Investment Authority. Early this morning, Italy unveiled a plan to create a national interests committee that capped sovereign fund investment at 5 percent, making Italy one of the most restrictive markets in Europe. Critics counter that such a plan would keep European wealth in the hands of the reigning elite and would extinguish vital foreign investment.

Discussion Questions
1. Should countries assure that internal rather than outside investors buy national businesses? Does this amount to state-endorsed protectionism? Ethnocentrism? Discrimination?
2. In a global credit crisis should protectionism even be a concern?
3. Does it matter whether the company being rescued is private, state-owned, or public?

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