Italy's left-wing Union coalition, headed by Romano Prodi, has claimed victory in this week's general election. Incumbent Prime Minister Silvio Berlusconi, however, refuses to concede and has demanded a recount of 43,000 spoiled ballots. If Prodi succeeds in forming the next Italian government in May, as is likely, he will face a huge challenge in governing the country effectively with a wafer-thin majority, and Italians can expect a new era of political uncertainty, with the prospect of another election in the near future.

Given the divisions within Prodi's multi-colored coalition, which includes unreconstructed Communists, centre-left parties, Greens, Catholic groups, and some Christian Democrats, it is difficult to see how Prodi will keep the warring factions together. It is even harder to see how the new government will be able to deal with the huge economic problems that have earned Italy the reputation as the new 'sick man of Europe,' a staggering achievement considering the intense competition for the title from both France and Germany. Prodi's last government in the 1990s lasted less than two years, brought down in 1998 by a disagreement with the powerful Communist Refoundation Party. It is conceivable that his new administration may not survive beyond six months to a year.

Despite this domestic weakness, Prodi is likely to be aggressive on the international stage, and will attempt to fundamentally alter the outlook of Italy's foreign policy. As the centre-right period of dominance in Italian politics draws to an end, the U.S. must watch for a potential anti-American axis developing between Rome, Paris, and Madrid.

Prodi and U.S. Foreign Policy

The election of Romano Prodi as Prime Minister would herald the end of the close alliance between Washington and Rome. Berlusconi has been a close ally and strong supporter of the U.S.-led war on terrorism and at times a far more effective international leader than a domestic one. In the face of strong opposition in Europe and at home, Berlusconi dispatched 3,000 Italian troops to Iraq in 2003 to support post-war coalition operations in the Shiite south and made closer ties to President Bush and Prime Minister Tony Blair his top foreign policy priority. He was one of a select few international leaders accorded the honor of addressing a joint session of the U.S. Congress.

In contrast, Prodi, the dour former president of the European Commission, has been a fierce critic of the Iraq War and key aspects of Washington's anti-terrorism policy. He attacked the war as "deadly and useless"[1] and accused Berlusconi of dragging Italy "into an unwanted military adventure for the sole reason that our prime minister could be invited to the palaces of the world."[2] Echoing the Zapatero victory in Spain, Prodi has pledged to withdraw the 2,600 Italian troops still stationed in Iraq immediately if elected.[3] The new Prime Minister is likely to distance himself from President Bush and align himself more closely with Brussels than Washington in the wider war on terrorism.

As a European Union official, Prodi forcefully backed the Spanish government's decision to pull out of Iraq following the Madrid bombings, a move viewed by many in Europe and the United States as a cowardly capitulation to terrorism. As Commission president, Prodi declared that "with this decision, Spain has fallen into line with our position—the divide that prevented Europe from having a common position is being overcome."[4]

Prodi has been fiercely critical of the U.S. detention facility at Guantanamo Bay, describing it as a "constant wound on our image" that "needs to be closed."[5] He has also been an outspoken proponent of the International Criminal Court (ICC), which is strongly opposed by the United States. As president of the European Commission, Prodi made headlines when, in a thinly veiled threat, he warned aspiring EU member states not to sign agreements that would bar them from handing over U.S. peacekeepers for prosecution by the ICC.[6]

Prodi and Europe

In addition to Romano Prodi's views on Iraq and the war on terrorism, policymakers in Washington should carefully scrutinize his extreme opinions regarding closer political integration in Europe. Prodi will ditch the Eurosceptic approach of the Berlusconi government in favor of pushing for a common European foreign and security policy and a range of additional powers for the executive branch of the EU. Prodi has said that strengthening ties with Europe will be his top foreign policy goal. In a display of solidarity with Brussels, has called on the headquarters of the International Monetary Fund (IMF) to be relocated from Washington to European soil.[7]

As European Commission president from 1999 to 2004, Prodi was an arch Euro-federalist whose gushing vision of a powerful, unified Europe in a "multipolar" world would make even French President Jacques Chirac blush. In a speech to an EU summit in Barcelona in 2002, Prodi stated that Europe's goal was to create "a superpower on the European continent that stands equal to the United States."[8]

In his position as the EU's chief political spokesman, Prodi called for "a giant step forward in European integration," producing a blueprint for a Europe-wide super-state, with direct control over foreign policy, criminal justice, and taxation.[9] Prodi's radicalism culminated in a major speech to Valery Giscard d'Estaing's convention on the future of Europe in which Prodi spoke of European Commission plans to create "the world's first true supra-national democracy."[10] Unsurprisingly, Prodi's electoral win has received a ringing endorsement from the Elysee Palace, where the French president has expressed hope that "Italy and France will reinforce their ties and cooperation in the European project."[11]

The Sick Man of Europe

Italy's Prime Minister-in-waiting may be energized by grandiose visions of a European counterweight to American power, but most Italians will be more concerned with the dismal state of Italy's economy. Over 80 percent of the Italian electorate turned out to vote this week, and the economic downturn was by far the most pressing issue.

According to the Economist Intelligence Unit (EIU), Italy's economic growth has been "the worst among the EU member states in the last 10-15 years. After expanding by just 0.1% in 2003 and by 0.9% in 2004, GDP rose by a mere 0.1% in 2005."[12] The EIU forecasts that Italy's GDP will grow at most by just 1.5 percent in 2006-07. Italy's budget deficit is expected to rise to 4-4.5 percent of GDP in 2006-07, significantly above the 3 percent ceiling set by the EU Stability and Growth Pact.[13] To compound matters, Rome's public debt stands at 106 percent of annual GDP, forcing the Italian government to spend 4.6 percent of GDP ($79 billion) a year just to service it. In the face of mounting competition from Asia, Italy's share of world trade has fallen from 4.6 percent in 1995 to just 2.7 percent in 2005.[14]

Italy's long-term prospects are exceedingly gloomy, with poor demographics adding to the problems of heavy debt and weak competitiveness in global markets. Italy's population is among the oldest in Europe, and the country has a birthrate of just 1.3 children per woman.[15] Italy has the lowest employment rate among its working-age population in the entire EU, at just 58 percent. Since the introduction of the Euro in 1999, unit labor costs in Italy have climbed by 10 percent.[16]

A Prodi government, held political hostage by the Communists and powerful trade union interests, will likely not have the political will, vision, or ability to implement the market reforms necessary to reverse Italy's economic decline. Prodi's pledge to reverse laws introduced by the Berlusconi government to increase competitiveness in the labor market will only further weaken the Italian economy.

Conclusion

The likely defeat of the charismatic Silvio Berlusconi, Italy's longest-serving prime minister since the 1940s, brings to an end a five-year period of relative political stability, marred by economic decline, in a country that has suffered through nearly 60 governments since World War II. His socialist successor, once described by the somber Frankfurter Allgemeine Zeitung as "the chief bore" of EU summits[17] and derided by his critics as a glorified "undertaker" is now tasked with bringing to life an Italian economy that is lying on its deathbed. Prodi's likely short-lived coalition will almost certainly find it an impossible challenge. What Italy needs is an economic revolution of liberal market reforms, rather than more empty rhetoric and state intervention. Unfortunately a Prodi administration is likely to veer heavily toward the latter.

For the United States, the end of the Berlusconi era would mark the loss of a close ally on the international stage. While cooperation between the U.S. and Italy will continue in defense and some areas of the war on terrorism, the relationship between President Bush and Prime Minister Prodi will be strained over issues such as Iraq, Iran, Israel, Hamas, the ICC, rendition, and the detention of terrorism suspects. The Bush Administration should expect a realignment of Italian foreign policy away from Washington and London and towards France, Germany, and Spain, as well as the EU elites in Brussels.

The United States should be especially wary of a potential anti-American axis developing between Paris, Madrid, and Rome. While Prodi may prove a lame duck on domestic economic reform, he will be far more willing to flex his muscle on the international stage, building a socialist Italian foreign policy that could well be hostile towards Washington.

Nile Gardiner, Ph.D., is the Bernard and Barbara Lomas Fellow at the Margaret Thatcher Center for Freedom, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies at The Heritage Foundation. Anthony Kim and Ewan Watt assisted with research for this paper.