Dispatch

Berlusconi’s Final Act

Italy's buffoonish leader has finally resigned. But is he really leaving?

ROME – In his farewell video, Italy's former prime minister Silvio Berlusconi said that he was not going to give up politics -- on the contrary, he would double his efforts to change the country. His supporters have been doing their bit too, on the streets, with posters, and on air. On the face of it, there is no reason to presume that Mr. Bunga Bunga has gone bye-bye for good.

Indeed, it was not really a farewell message at all. After Berlusconi resigned, he pointed out -- quite correctly -- that he had survived a vote of confidence and that he still has an absolute majority in the Senate, where he has already said that he can pull the plug on Mario Monti's new government whenever he wants. And even as he made this threat, Berlusconi declared that his resignation had been "statesman-like"; in his version, he gave up power for the good of the country.

It was significant that The Economist titled its article "Addio Silvio" (goodbye, Silvio) not "Arriverderci" (see you again) -- a hope rather than a statement. But those celebrating his resignation in Rome last Saturday were too smart to think either that the country's problems were over or that Berlusconi had left for good. There has been no political equivalent of the stake through the heart; a resounding defeat either in Parliament or at the polls.

There were even suggestions last week that one of the reasons Berlusconi stepped down was the dip in shares of his television empire, Mediaset. On Wednesday, they tumbled 12.5 percent. Perhaps the conflict of interest in owning a large chunk of the Italian media had come back to bite him hard and where it hurts -- in his wallet. An alternate theory held that by leaving office, Berlusconi and his companies would have to forego lucrative government publicity contracts. The fact that both theses are plausible shows how deep the marriage between public and private interest was (is?) in Berlusconi's Italy.

Even though his departure seemed sudden, it was controlled and planned. His video message aired across the networks. And although he looked very drawn and tired, his words were as buoyant as the old days. The fact that a prime minister bowed out with a special message is exceptional -- normally, Italian leaders confine themselves to a short statement conceding defeat and wishing their successors well. Not Silvio Berlusconi. He is not the retiring type.

There is a real possibility that he will make another run for power either in the near future, if the Monti government shows itself unable to calm the markets and elections are called early next year, or in 2013, when the legislature reaches its natural term, even if Monti is successful in bringing Italy's massive debt under control. To do it, Monti will have made Italians pay a high price economically and socially and the political parties will be able to blame him rather than themselves. Given Berlusconi's reluctance to support Monti, he will try and present himself as the return to the good times.

In either scenario, Berlusconi will have his television stations -- the three he owns and some residual support in two of the RAI public channels. Monti's government has neither the time nor the style to move Berlusconi supporters out of positions of power. He still has his print media, dailies, and weeklies, and of course he still has in practice unlimited financial resources. He has lost that other commodity he used so well over the past year, government patronage -- a number of his new supporters last year came over with an offer of an undersecretaryship or the like -- but he can, and no doubt will, promise jobs in his future government. It is still Italy, after all.

The other element that helped keep him in power for eight of the last 10 years is almost as valid today as before: divisions in the opposition. For the moment, at least, most of the left, all of the center-left, and the center have united around Monti to address the crisis, but we can be pretty sure that they will start bickering as soon as elections come ‘round.

Worse, there is at least one dark scandal cloud hanging over the main center-left party, the Democratic Party (PD) -- allegations of illegal financing in Milan over many years, with the main person involved closely linked to party secretary Pier Luigi Bersani. Whatever the truth of the allegations, we can be sure that the Berlusconi media will hammer the story.

Despite the economic and financial disaster that Italy finds itself it, Berlusconi still has an approval rating of over 20 percent -- higher than that of the U.S. Congress. The polls give the center left parties a good majority, but over the last few months the biggest and still-growing group consists of the undecided and non-voters. In the past, Berlusconi has been able to bring them out.

There is also the possibility that he will try to act from behind the scenes and hand over formal power gracefully to his party secretary, Angelino Alfano. But Alfano is a lightweight and Berlusconi likes the limelight too much. It is hard to imagine him staying quiet.

Berlusconi faces many obstacles to making a comeback. No longer prime minister, he will find it much more difficult to avoid the hearing in his four trials (three for corruption and one for abuse of power and sex with an underage prostitute). His party, like the center-left, is divided. He is also 75 and showing his age, so it will not be easy to appear like Italy's future, rather than its past.

Still, after years of declaring that Berlusconi was finished and about to leave the scene, it would be presumptuous to say that he will just fade away now. The last act will be full of surprises.

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Dispatch

Inside Syria's Economic Implosion

Under the weight of sanctions and eight months of protests, the Syrian economy is starting to buckle. But that doesn't mean business leaders will abandon the regime.

DAMASCUS, Syria – A Quran sits atop a 4-foot Sony speaker in Wissam's modern Damascus office. It is 9 a.m., and Wissam, a stout 30-something businessman, seems flustered. He arrived a little late for this interview, wiping beads of sweat off his forehead before sitting down next to a cabinet, where books authored by Bill Gates and Warren Buffett peek out. Wissam's company owns the import rights for Sony products in Syria, but he's unlikely to sell many speakers or flat-screen televisions in the near future.

"Business activity has recovered slightly, but it is still down about 40 percent" since March, when the protests began, he said. "I think companies can survive another six or maybe even 12 months, but beyond that it will be impossible."

Wissam, like others in his position, is trapped. He recognizes the regime's actions have damaged the country's businesses, but feels powerless to do anything about it. "They feel they are under siege, and they won't be moved," he said, referring to the authorities.

Syrian business leaders, with much to lose and deeply fearful of the regime's security apparatus, are unlikely to join the country's ongoing revolt anytime soon. Even the businessmen interviewed for this article blanched upon seeing their remarks about the dismal state of the Syrian economy in print, quickly requesting anonymity to express themselves freely. The government's rose-tinted pronouncements about the condition of Syrian finances aside, there is no doubt that the country's economy is in dire straits.

The official line is that Syria's economy is fine. In an August interview, Central Bank Governor Adib Mayaleh said that foreign reserves remain strong at about $18 billion -- the same figure he was quoting earlier in the summer. President Bashar al-Assad has been somewhat more honest, arguing in June that "the most dangerous thing we face in the next stage is the weakness or collapse of the Syrian economy."

But the facts on the ground are irrefutable. The International Monetary Fund projected in September that Syria's economy will shrink by about 2 percent this year. Tourism, worth about 12 percent of GDP, has ceased completely. Employees in the huge and overburdened state sector have been asked by the authorities to "donate" 500 Syrian pounds (about $10) from their monthly salaries to help boost state funds. Deposits in Syria's private banks declined as much as 18 percent in third quarter of this year, according to figures released by the Damascus Securities Exchange, despite high interest rates meant to shore up bank coffers.

Yehia is the vice president and executive director of a major aluminum manufacturer and is from a family business that owns several car dealerships. "Before the crisis we sold between 12 and 15 cars per day," he said. "Today we sell two or three."

But though Yehia is openly critical of the regime, he denies that Syria's merchant class is primed to move against Assad. When asked whether he would financially support the Syrian National Council, the umbrella group that claims to represent the protest movement, Yehia said he would. "But it is just way too dangerous; there are spies inside the opposition."

The United States and the European Union have responded to the escalating violence by slapping new sanctions on Syria, effectively isolating the country from the world financial system. Funds held in international banks cannot be accessed through Syrian banks, meaning that foreigners in Syria hoping to get cash through local ATMs will be left disappointed. Sanctions have also driven credit card companies out of Syria, denying businessmen access to an important means of making transactions. Popular Turkish clothing items that once swelled the Syrian market can no longer be found. One businessman who imports generators from Turkey complained he can no longer get letters of credit from overseas banks. "No one wants to do business with us anymore," he said.

Wissam, the vice president of a leading Damascus-based conglomerate that has interests in Syria's pharmaceutical, imports, banking, hotel, media and foreign exchange sectors, notes that these sanctions have already kept numerous companies out of the country. "BlackBerry couldn't enter the Syrian economy because, as a Canadian company, it didn't want to go against America's lead in sanctioning Syria," he said.

As he points out, the West's economic moves will undoubtedly affect all Syrians, rather than just a narrow few. "The sanctions are supposed to affect certain individuals, but we know this will not be the case," he said.

But while sanctions have no doubt harmed Syria's economic outlook, other wounds have been self-inflicted. In September, the Syrian government imposed a ban on imports that carried a tariff of over 5 percent, resulting in hoarding and a dramatic rise in the price of household staples. The arbitrary nature of the products that fell under the ban only further incensed the business community. Swordfish were at first exempt but later banned; fish with teeth from Australia and Antarctica, however, were allowed. Saddles and bicycle seats, too, were exempt under the ban. Car imports were banned. Perishable food products on the way to or at the border had to be thrown out. Syrian businessmen and the wider population scratched their heads in wonder.

Realizing its error, the government reversed the ban less than two weeks after it was imposed. In an attempt to boost government revenues, a 10 percent increase in Syria's car import tax was introduced in October following its cancellation.

Mohammad, the vice chairman and managing director of a group of companies involved in retail, agriculture exports, and marketing, blasted the import ban as "completely dimwitted; it made no sense at all. It was made without any notice, any plan, any research," he said.

Mohammad believes the decision to introduce the ban was made by Mayaleh, the central bank governor, whom he holds responsible for the massive depletion of the state's foreign reserves. "For months Syrians were able to take out up to $10,000 per month, and this destroyed the state's dollar reserves. It was a stupid decision -- of course everyone who had money would convert to dollars," he said.

Although the Assad regime's relationship with the business elite in Damascus and Aleppo has long been a pillar of its strength, Mohammad said that the merchant class was too cowed to register its discontent with the import ban. "The Damascus Chamber of Commerce should have resigned," he said. "They were afraid to go further up to the president and ask about why this decision had been made without the business community."

He thinks the import ban was revoked so quickly because the regime realized other countries would simply stop imports of Syrian goods in retaliation, not because the business community used its muscle to pressure the regime.

The same dynamic appears to hold true in Aleppo, Syria's most populous city, which has largely avoided the mass protests that have seized other parts of the country. "I visited Aleppo recently, and the businessmen there are totally pro-regime -- every single one I met," said Abdullah, a managing director of a glass and steel manufacturing company. "The business communities in other cities and around the country think the Aleppo businessmen have betrayed them, and this could cause problems in the future."

On the street, Syrians have had to tighten their belts. The price of cigarettes, for example, has gone up between 40 and 50 percent. Mazout -- the diesel oil used to fuel the country's transportation system and which will be needed to heat 22 million Syrians this winter -- is reportedly running at more than double the official price.

As sanctions take their toll, the regime has also been forced to increase its spending just to keep the economy afloat. The government has increased its budget for 2012 by 15 percent to $26.5 billion, according to al-Watan, a pro-regime daily.

With oil revenues set to plummet, however, where will the money come from? Oil exploiter Gulfsands Petroleum has been asked by the state to decrease production due to a lack of storage. Syria attempted but failed to barter crude oil for fuel during a tender offered in September. This month, the European Union will cease importing Syrian crude oil following a decision made in September. Prior to the ban, Syria exported about half its crude production, with the EU by far its largest market.

Foreign currency is growing increasingly scarce in Syria as both businessmen and the general public seek to get their hands on safe euros and dollars. Abdullah, the glass and steel manufacturer, admitted that he tried to buy $100,000 from the black market several weeks ago, but couldn't. "It simply isn't there," he said.

He explained that imports taxed over 1 percent have to be paid in foreign currency to the Central Bank and that businessmen turn to the black market for those funds to finance that expense. "We pay 53 Syrian pounds on the dollar [on the black market], but this is increasing," he said. The official rate stands at about 49 Syrian pounds to $1.

Many businessmen told me that though their fortunes were down, their companies are surviving and they have managed to avoid mass layoffs. Wissam said that his company has avoided firing anyone out of "patriotic duty."

The reluctance of some employers to lay off workers may play a role in tempering the protests. Few are positive about the future, however. "I won't go and protest; I've got a degree, and I could leave the country," said Mohammad. "But my employees probably would, should they lose their jobs."

With thousands out of work since the unrest took hold last March, many restaurants in Damascus, particularly those that cater to low- and middle-income Syrians, are empty. Around the capital, clothes shops are continuing summer sales well into fall. Taxi drivers complain of empty streets. Fear of the future is palpable.

It is clearly fear of the country's security apparatus that concentrates the minds of many businessmen. "There is too much fear for any business leader to turn against the government," Yehia said. "The security can get to whoever they want -- it doesn't matter how big the businesspeople are. There are no boundaries. It [turning against the regime] is just not going to ever happen."

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