One hundred days of chaos: The lira plummets, neo-fascists gain ground, coalition partners are in revolt, but Silvio Berlusconi still says Italy has never had it so good. Michael Sheridan on the crisis closing in on Rome's 53rd post-war government

Silvio Berlusconi would have preferred to celebrate his first 100 days in power by the limpid azure sea off Sardinia, improving his apparently permanent suntan in the undemanding company of his show-business friends. Instead, beset by political, economic and legal troubles, he flew back to his well guarded villa in northern Italy. He summoned television crews for set-piece interviews - the Prime Minister's favourite method of reaching the people. 'Let's roll up our sleeves together for a future of prosperity and freedom,' he told them. 'Relax and enjoy the holidays. Italy's never had it so good.'

It was a bravura performance from a cruise-ship crooner turned media tycoon and politician. The Berlusconi government, which took office on 10 May amid heady promises of free enterprise and reform, has seen its Roman spring dissolve into a summer of recrimination, scandal and lost opportunities. How could it all have gone so wrong in less than 100 days?

In the deserted capital, the fountains play to empty piazzas, but the political atmosphere is as torrid as the Roman heatwave. The lira has collapsed to a post-war low against the Deutschmark after investors, worried by Italy's enormous state debt, bailed out of the currency.

'There are 100,000 new companies,' insisted Mr Berlusconi, '200,000 new jobs, industrial production is up, more tourists are coming, inflation is at an all-time low. This is reality.'

The reality, responded an opposition economist, Beniamino Andreatta, is that the government cannot agree on its economic policy. 'Their draft budget is a document written in water with no explanation how they will reach their target figures,' he said.

During his election campaign Mr Berlusconi promised one million new jobs. He said he could cut the public debt and reform taxes at the same time. But no details, he now says, can be given until the end of September. Relations are fraught between the coalition partners - Berlusconi's home-made movement, Forza Italia, the neo-fascist National Alliance, the regionalist Northern League and a small splinter group of Christian Democrats.

While the real economy is recovering from recession, the old Italian problems of huge state debts and a grossly inefficient public sector remain the same. In short, this 53rd post-war Italian government is looking very much like its 52 predecessors.

'Previous governments kept their divisions secret and made their decisions in secret corridors and in smoke-filled meetings,' claimed the Treasury Minister, Lamberto Dini. 'This one, however, discusses and decides everything in the light of day. The markets don't understand that.'

But Mr Berlusconi's problems do not stop with the economy. The anti-corruption magistrates in Milan have not heeded his advice to go on holiday. They are investigating Mr Berlusconi's brother, Paolo, and their investigative net is tightening around his media group, Fininvest. Last Friday they began assessing the Prime Minister's public admission that Fininvest executives had made payments to officials of the Guardia di Finanza, Italy's tax police.

The Prime Minister's troubles began early on. Forza Italia was never really a political party. It was devised by marketing executives and modelled on the network of supporters' clubs run by Mr Berlusconi's football team, AC Milan. It lacked any more profound philosophy than a unifying belief in the genius of Silvio Berlusconi.

Nor did Mr Berlusconi's experience as the autocratic head of Fininvest, a company built on the traditional Italian pattern of family and patronage, equip him for the negotiation and compromise inherent in political life.

Further, he was closely linked with the disgraced political regime he purported to depose. The Berlusconi property and television empires owed much to the Socialist Party and its leader and former prime minister, Bettino Craxi. Mr Craxi has now received an eight-year jail sentence for fraudulent bankruptcy but seems indisposed to return from his villa in Tunisia to contest this and other charges of corruption.

At first, none of this seemed to matter to Mr Berlusconi. Forza Italia came from nowhere to win 21 per cent of the vote in elections on 28 March. The coalition was put together relatively quickly. Mr Berlusconi smoothed over the central issue that has since dogged his premiership, namely, how could he remain owner of almost all Italy's private television networks and also be prime minister without a clear conflict of interest?

On 17 May Mr Berlusconi delivered a rousing speech to parliament. He won wide applause and the markets hailed what they chose to see as a 'pro-business' government. On 12 June, Forza Italia won almost 31 per cent of the vote in European elections. A sleek and confident Mr Berlusconi prepared to meet his fellow leaders of the Group of Seven industrialised nations at the Naples summit, where they would also receive Boris Yeltsin.

Yet by the end of June the government was entangled in controversy. It was emblematic that the trouble should involve Mr Berlusconi's old rival, the state broadcaster RAI. The Prime Minister tried to fire its governing board. Italy's head of state, President Oscar Scalfaro, intervened to protest that the move was unconstitutional. The board resigned anyway. In the subsequent row, opponents pointed out how many Fininvest executives now inhabited the Berlusconi government. Mr Berlusconi promised to put his Fininvest assets in a blind trust, but has failed to act on that pledge. The conflict of interest argument would not go away.

Next, Mr Berlusconi decided to assert his authority over the Bank of Italy. He wanted to control the choice of successor to Lamberto Dini as deputy governor. The markets looked on with concern because the central bank controls interest rates and Fininvest, with its large debt burden, clearly wanted lower rates.

But that worry was quickly overshadowed by a Berlusconi decree which stripped Italian magistrates of their power to detain suspects in corruption inquiries. Two obvious beneficiaries would be the Prime Minister's brother, Paolo, and his old friend, Bettino Craxi. The ensuing uproar almost split the coalition and the decree was hastily rescinded. On 23 July Milan magistrates issued warrants for two Fininvest executives on bribery charges. A few days later, Paolo Berlusconi gave himself up and was placed under house arrest on related charges.

By this time the coalition was under visible strain. Umberto Bossi, the coarse but shrewd leader of the Northern League, knew that many of his voters had abandoned the old parties precisely because they were tired of corruption, indolence and squabbling for power. Mr Bossi delivered himself of loud and frequent criticisms of the Prime Minister's business interests and choice of associates.

Mr Berlusconi was slow to produce legislation but industrious in the service of his own public image. He said the Italian press was pro-leftist and biased against him. He chastised the foreign press for taking its cue from this tainted source. 'All over the world the intellectuals and opinion formers are almost always left-wing and that's why the government has a negative image,' he said.

The Berlusconi solution was to go straight to the voters with television commercials depicting the achievements of the government. Mr Berlusconi's own networks already gave lavish treatment to his deeds. But these laudatory advertisements were broadcast on state television - in slots reserved by law for matters of civic concern. The television ombudsman intervened. The adverts were withdrawn.

It was this last reverse that triggered the sell-off in Italian stocks and bonds. Brokers, seeing political disarray and no sign of financial reform, fell out of love with the 'pro-business' government. Perplexed by the unfamiliar workings of a global market beyond political control, some members of the government talked heatedly of conspiracies.

The Labour Minister, Clemente Mastella, declared that the pressure on the lira arose 'because the presence of the (neo-fascist) National Alliance in the government worried the New York Jewish lobby'.

To his credit, Mr Berlusconi avoided any recourse to such sentiments. But Italy's much-heralded 'Second Republic' has yet to come to birth and the first republic's vices - debt, corruption and inefficiency - flourish almost unchecked. The only politician whose standing rises in the polls is the neo-fascist leader Gianfranco Fini.

Today is Ferragosto, the great summer holiday upon the feast of the Assumption of the Madonna. For Mr Berlusconi it promises one blessing: the Italian financial markets are closed.

(Photograph omitted)

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