Can Berlusconi's Legacy Be Undone?

Now that Italy's prime minster is out, the hard work of undoing his many wrongs begins. Rula Jebreal on the man who might be able to get it done.

11.13.11 2:12 AM ET

Italian Prime Minister Silvio Berlusconi has finally stepped down, and thousands have taken to the streets to celebrate the end of an era. No one should be surprised that his term in office ended with a spectacular political collapse. But surprising many, the end was caused not by sex scandals, tax fraud, or widespread corruption. After weathering debacles that would have spelled the end for most world leaders, the prime minister found himself felled by the market. As Italy is assailed by a stagnant economy and ballooning debt,  Berlusconi was urged to the door by his coalition and business leaders, including Tod’s Group head Diego Della Valle and Emma Marcegaglia, who leads the country’s chief industrial association.

Now, with the economy in turmoil and people’s faith in the legitimacy of the political system shattered, the country must act quickly to regain its footing. Italians’ quick and violent embrace of the Occupy movement in October, when hundreds of protesters rioted in Rome, leaves no doubt that the people are angry. Without immediate reforms, the country risks being engulfed in protests on an even higher order than the 1991 student uprising, the so-called Clean Hands Revolt (Mani Pulite) in which thousands took to the streets throwing coins and shoes to protest Prime Minister Bettino Craxi.

Berlusconi made sure not to exit quietly. Instead, he imbued his departure with the same theatricality that characterized his tenure, announcing that he would retire a week after the country’s stability vote, and hastening to add that there is nobody to take his place. Despite publicly accepting defeat, he refuses to accept that his time in power is truly over. Even now, he seeks to have a hand in the country’s political future, playing political games behind closed doors and attempting to help determine who will succeed him.

The now former prime minister said that he left because he was betrayed by his people. However, almost from the start, it was Berlusconi who betrayed Italy. Winning office as a self-professed reformer around free-market principles, he appealed to Italians’ worst instincts. He promoted tax evasion and cast into doubt the legitimacy of the justice system, and his constant strategy of attacking the media whenever his actions were questioned made the national debate about his persona instead of the country's problems. His eight and a half years of leadership shook both the economic and the moral core of Italy.

Now the country must extricate itself not only from the deeply entrenched corruption that Berlusconi left as his legacy, but also from immediate economic peril. The country’s financial state appears grim: its bond yields have surpassed 7 percent, and its national debt has reached more than $1.9 billion, leading to concern that Italy could default and thrust the European Union, and the world economy, into greater economic turmoil.

The next potential leader appears to be Mario Monti, a technocrat and former European Union competition commissioner. Monti was recently nominated as Senator for Life by Italian President Giorgio Napolitano, paving the way for him to lead Italy’s interim government.

Unpopular among both the people and the power brokers of Italy, Monti is a bitter pill for most Italians to swallow, and his planned reforms are unlikely to go down easy. But his leadership makes sense, both because he has the right ideas to set the country back in motion and because he lacks political loyalty and ambition, which will help him implement these ideas, many of which are certain to ruffle well-connected feathers.

Monti came up with a formula to restore Italy to economic health. The government must curb its spending and raise taxes—with a one-off tax to the wealthy that could help inject investor trust in the markets. Perhaps most controversially, the government must reduce the privileges bestowed upon politicians. Currently ministers enjoy multiple assistants, fine cars, and generous pensions, not to mention free rides throughout the world aboard private jets. As the country faces the reality of a potential default, these perks must be swiftly abolished.

The need for these reforms is recognized not only by political leaders within the country but also by the IMF and the European Central Bank, which is committed to monitoring them. The European Central Bank played a hand in hastening Berlusconi’s departure by slowing the payment of Italian bonds. However, the country is simply too big and too indebted for these bodies to bail it out, so ultimately change must come from within Italy.

Such change is sure to exact a high political toll upon whoever implements it, which is why Monti is particularly well suited for the job. Neither major party wants to bear the political costs of cutting back, and at this point, even if they did, both the left and the right are so embroiled in intraparty conflict that it’s unclear whether either has the political unity to effect reform. But like children worn out by their incessant squabbles, Italy's major political figures appear ready to let an adult step in and lead them. Enter Monti, the unpopular but necessary economist who is now tasked with forcing the country back on track.

Monti’s technocrat-led interim government wields the key to reforming a system in which political ties have long offered an abundance of power and (often corrupt) perks, but only so long as one didn’t challenge the status quo. It will take an outsider to untangle the pernicious insiders' club that Berlusconi created in the Italian government.