The Dolce Vita is ending in Italy, the world's seventh largest economy, with austerity cuts aimed at avoiding default on its €1.9tn debt.
Italians call for Berlusconi to go as debt crisis grows
MILAN // The Dolce Vita lasted for a long time in Italy, but now it is back to reality.
Postwar prosperity allowed hundreds of thousands of workers to retire with full benefits before the age of 50.
Public spending ran over, creating bloated bureaucracies and a political class that consume half of the national wealth generated each year.
Easy-going Italians, expecting little from the state, rarely think twice about paying under the table for home improvements, dental work or even a frothy cappuccino.
But the bill for decades of excess is coming due, and the price to escape Europe's sovereign debt crisis is steeper than many feared.
The premier, Silvio Berlusconi, a tenacious leader who has survived sex scandals and multiple criminal prosecutions to head three governments since 1994, is losing his grip on power and lacks the political muscle to push through change.
During an economic summit in France, he asked the International Monetary Fund to monitor the country's reform efforts, a humiliating development for the world's seventh largest economy.
The deepening crisis has already shaken three governments - in Ireland, Portugal and Spain, where early elections are scheduled in two weeks - and Greece's Socialist-led government is struggling to form a unity government after narrowly surviving a confidence vote. Many believe Italy would be next.
"Berlusconi's time is up," Ferruccio de Bortoli, editor of the leading Italian daily, Corriere della Sera, wrote this week. "He risks bringing down his party, which should push him to leave, and above all the whole country."
The government's turmoil reflects a deepening unease about the financial uncertainty that was gathering over the country.
Italians, still hurting from the 2008 financial crisis that slowed factories and idled workers, were paying with continued economic turmoil and austerity moves that were hurting consumer confidence.
The broader fear was that Italy, if it faces default on its enormous €1.9 trillion (Dh9.6tn) debt, would drag down the euro zone, if not the global economy.
"We, the young ones that pay the highest price, we are the ones who are paying for the crisis," said Giuseppe Muscanera, a teacher from Bologna, at an opposition rally in Rome on Saturday, where protesters demanded Mr Berlusconi's removal.
"We can start rebuilding through a serious governing class, with ideas, that wants to work," he said.
For at least a decade, Italy has been getting by with high public debt and low growth without setting off major warning bells.
Unlike their government, Italian households save a lot and a majority own their own homes. This insulated the country from the real estate crashes and private debt crises that hit other economies, such as Spain, so hard in 2008.
Unlike many eurozone countries, even rich and stable Germany, Italy did not have to bail out its banks during the 2008 global credit crunch because they had avoided excessive risk-taking.
But the past two years' sovereign debt crisis has changed all that.
After Europe was forced to bail out Greece, Ireland and Portugal, investors reviewed their assumptions about how risky government bonds in Europe were.
Fearing the worst, many traders started selling their Spanish or Italian bonds in favour of the safer ones, mainly from Germany.
Some economists have blamed Europe's slow and indecisive handling of the debt crisis for allowing investors' concerns about bigger economies to grow.
The possibility that Italy may need a bailout rises each time its borrowing costs go up.
Borrowing rates on 10-year bonds reached a euro-era high of more than 6 per cent last week.
Italy's new chief central banker, Ignazio Visco, said Italy can survive with rates of up to 8 per cent, but the extra cost of borrowing was eroding the savings the government gleans from its austerity measures. That sort of downwards spiral was what has pushed Greece to need multiple bailouts.
To avert default, Mr Berlusconi's increasingly fractious governing coalition was under intense international pressure to approve and implement measures to balance the budget and spur growth - the only sure way to bring down national public debt. But infighting has been hindering those efforts.
After failing to come up with emergency measures that would take immediate effect this week, Mr Berlusconi proposed legislation that he promised to put to a confidence vote within two weeks. If he loses, he must step down.
The new measures include a plan to sell government assets, which was expected to raise €5 billion a year over the next three years, and tax breaks to encourage employment for the young and to get women back into the workforce in a country where youth unemployment runs at 29 per cent and just 48 per cent of women have jobs.
The legislation would also allow stores to stay open on Sundays and open up closed professions.
Mr Berlusconi has also pledged to raise the retirement age to 67 for all classes of workers.
The way forward was uncertain, however, as entrenched interests make change difficult in Italy.