Inside Story: Rotten to the core: In the Eighties, Italy seemed to embark on a glittering renaissance. But the ancient web of patronage at its heart was starting to unravel. Michael Sheridan reports from Rome

LIKE A classical mosaic long covered by sand and now exposed to wind and rain, the Italian ruling order is disintegrating. One by one, the glittering fragments are falling away and soon the heroic scene they once made up will be nothing more than a memory.

Each day brings new arrests, indignant denials and more resignations. It was just over a year ago that the judiciary began to attack the system of corrupt party patronage that has governed Italy since 1947. It is a few months since the inquiry acquired irresistible force. It has now become revolutionary in its effects.

Between the decimation of its elite, the devastating economic recession, worsened by government debt, and the imminent referendum on radical electoral reform, Italy is in a state of stunned uncertainty. In prospect now is change as profound as the transformation of Spain from dictatorship to democracy in the late Seventies.

Many Italians see it as a clash of generations. Italian politicians and business leaders tend to acquire power later in life and hang on to it longer. The dead hand of the old has stifled independence, initiative and youth in almost every area of life, from the state-run banks to the universities. While Spain after Franco found itself suddenly in the hands of dynamic leaders in their forties, Italy lumbered on in the grip of the established parties, failing either to reform or to rejuvenate itself. That renewal, many believe, is now at hand.

No observer of Italian politics will be surprised to learn that there is also a conspiracy theory to explain the whole calamity, involving the CIA, Serbia, the end of the Cold War and a plot by international finance to destabilise Italy and thus destroy any prospect of a unified Europe. Those putting forward this analysis, however, tend to be the very same people who are helping the police with their inquiries.

MACHIAVELLI wrote that the Prince 'should accommodate himself in power modestly, he should not rob his subjects . . . nor become rapacious and thus bring curses upon himself, for such are the defects of those who rule'.

Italy's political class failed to observe this precept. They fell upon office with the relish of the Renaissance pope who declared that since God had granted him the papacy, it was time to enjoy it. Now they are being called to account on a breathtaking scale. No British parallel is conceivable, for if every political scandal since Profumo were rolled together and revealed at once, it would not match the experience of Italians in the past year. A leading journalist has said it was like living through an earthquake.

The roots of the calamity are buried deep in the soil of the peninsula. Since classical times, the relationship of the patron-politician and his client or subject has been prized in Mediterranean society. Through favours, services and ties of mutual obligation, each party assured the security of the other. When, after 1945, Italy began to change from an agricultural to an industrial nation, the Christian Democrats brilliantly brought this arrangement up to date. They saw that a similar partnership between the electors and the elected offered a democratic alternative to fascist rule, allowing authority to be exercised over what was still an innocent culture, often sunk in poverty and immersed in religious faith.

It was remarkably successful, for down the succeeding decades Italy enjoyed the second highest growth of all developed countries. As the country developed, patronage extended into every area of life and the people became its accomplices. It was a resilient system: it extended wealth and kept the Communist Party out of government; it survived the oil shocks of the 1970s; it infiltrated then destroyed the terrorist groups who sought to destroy it.

This was the Italy of eternal political crisis, with 50 governments in 47 years but no real change of power. Its 'stable instability' was praised abroad, but there was always a price to pay at home, in unsolved bomb outrages, arcane bank scandals, dead tycoons and bankrupt prelates. The late Peter Nichols, who reported on Italy for the Times for 30 years, wrote: 'They took away the old peasant values and substituted nothing but the empty drive for acquisition.'

SECURE in power, attended by fawning clients and with the machinery to print treasury bonds at its disposal, the political class believed itself impervious to change.

Yet last week the new leader of the Christian Democrats, Mino Martinazzoli, found himself plaintively declaring: 'I have no intention of becoming the Romulus Augustulus of Christian Democracy.' Romulus Augustulus was the last Roman Emperor in the West. It has come to that.

On the left and among critics of the system, the sense of vindication is palpable. The old order stands revealed in the complexity of its corruption, a compound of inertia and greed that set a price on the humblest hospital job and even took a percentage on the contracts for school dinners.

From rake-offs on aid for the Third World to bribes for a council flat, no area of profit was neglected. The results stand, in the Italian phrase, as 'cathedrals in the desert' - roads in Somalia that lead nowhere, bridges in Tuscany high and dry amid the landscape, bankrupt chemical plants and dismal public services.

Italy has been left with a national debt so gross that the leader of the separatist Lombard League, Umberto Bossi, calls for it to be consolidated into a forced loan. His words are not to be dismissed, for the League is the fastest growing party in Italy.

FOUR cases sum up the collapse of political power. Giulio Andreotti is defending himself against allegations by magistrates in Sicily that he colluded with the Mafia, and charges from their colleagues in Milan that he arranged illegal political contributions.

It was the avviso di garanzia from Palermo (a legal notice that he was under investigation) against Mr Andreotti, who was long believed untouchable, that dealt a symbolic coup de grace to the existing order. One Italian weekly said that it marked the end of the First Republic.

It is difficult to convey to a British reader the importance of Mr Andreotti in his country's post-war structure, for no comparable figure exists. He entered government while Margaret Thatcher was an Oxford undergraduate, and was prime minister for a seventh time after her fall. In office since 1947, a devout acquaintance of five popes, an interlocutor with the United States from Eisenhower to Bush, a courteous, ironic dispenser of influence, Mr Andreotti was the spider at the centre of a web spread into every niche of the country's apparatus.

'I am bitter not so much for myself as for Italy,' he said last week. 'It is our country which is going through this, and it will be difficult to rebuild its image, especially abroad.' He denies any link with the Mafia, saying: 'I have been an angel in this matter.'

The 153-page indictment sent to parliament by the magistrates in Palermo explains for the first time in an official document how the Mafia dealt with politicians. It needed to fix judgments in the court of appeal, to ensure the transfer of zealous police officers and to regulate the economy of western Sicily in profitable alliance with the political class. The indictment claims that these wishes were conveyed to Salvatore Lima, leader in Sicily of Mr Andreotti's 'current' in the Christian Democrat party, and that Mr Lima passed them directly to Mr Andreotti himself.

In return, the Mafia offered guaranteed votes, the exclusion of communists and fascists and, on occasion, the ultimate sanction of the bullet - exercised, in the end, upon Mr Lima himself, who was shot dead last year.

Mr Andreotti has said that there is not a shred of direct evidence to link him to any member of the Mafia, but yesterday Italian newspapers published accounts of new testimony by Mafia supergrasses in the United States. The reports spoke for the first time of an alleged direct connection between the Christian Democrat leader and a Mafia clan leader, Stefano Bontade, who was killed by his rivals in the heroin trade in 1981. Even if the reports prove groundless, Mr Andreotti has suffered a mortal blow. Italy is far too subtle a society to require a 'smoking gun' to link those who regulate official affairs and those who regulate the underworld. The 153 pages before parliament constitute, in reality, a moral indictment of Mr Andreotti.

ARNALDO FORLANI, who received his avviso di garanzia last week, represented the other powerful coalition of interests inside Christian Democracy. He is alleged to have received illicit funds and broken the law on party financing, charges he dismisses as 'unfounded, of which I have no knowledge and which will be disproved'.

However, as in Mr Andreotti's case, the avviso is of enormous symbolism. Mr Forlani, former prime minister, foreign minister and leader of the party, has been robbed of influence, for power is seen to drain away from each man under investigation. The arrest of his private secretary reveals him as a politician no longer able to protect his clients.

Christian Democracy, once the chosen party of the Vatican and the White House, has been decapitated.

BETTINO CRAXI and his Socialists were supposed to be everything that the languid Christian Democrats were not - dynamic, reformist, serious, efficient, modern. When he joined them in power, he imported his 'decisive' style to the premiership for four years in the 1980s, for which he was lauded by the foreign press as a 'virtuoso'. But socialism Craxi-style merely exchanged the Sicilian compromises of the Christian Democrats for a businesslike web of corruption based in Milan.

This web unravelled last year, when the magistrate Antonio Di Pietro - now a national hero - arrested Mario Chiesa, a Socialist functionary. Chiesa was taped accepting a pounds 3,500 bribe for a hospital cleaning contract, money which he tried to flush down the toilet. His confessions set off the investigation from which all else flowed. Having made at least pounds 7m himself between 1986 and 1992, he was able to describe an intricate network of payments to all parties in Milan, including the Communists, who were cut in on bribes to keep them quiet.

Chiesa also explained the way patronage worked, how flats owned by state-held companies would be allocated to friends at peppercorn rents, how state jobs would be found at which no attendance was required, and how Mr Craxi's grasping relatives preened themselves at La Scala, while bullying contractors and buying off journalists with low-rent flats. Beset by at least 15 legal warnings from magistrates, Mr Craxi was forced to resign as leader of the Socialists. The party is heading for oblivion at the next elections.

THE FOURTH case, that of the Socialist former foreign minister, Gianni De Michelis, shows that the system extended from the rubbish collectors employed by Mario Chiesa to the heights of Italian business and into the foreign ministry itself.

The tenure of the Venetian Mr De Michelis at the Foreign Ministry provides an example of how the parties turned an elite institution into what Paolo Garimberti, the foreign editor of La Repubblica, describes ruefully as 'a ministry like any other'.

The Foreign Ministry was traditionally under the control of the Christian Democrats, and Mr Andreotti, when he was not prime minister, often took charge there. He permitted the professional staff a degree of independence, within understood limits, but the arrival of Mr De Michelis set off a rush of political appointments crudely designed to increase Socialist influence. As a result, two ambassadors are now under arrest on corruption charges, six have been officially demoted, another faces a legal investigation, the staff association is in ferment and the leading Milan newspaper Corriere della Sera notes that 'it will be a long slow process to repair the damage to Italy's prestige on the international stage'.

Mr De Michelis at one time headed the Ministry of State Participation, a fount of patronage whose functions stretched deep into industry and commerce. Italian business had long ago come to terms with the political system in order to prosper, and it, too, is now paying the price.

The leadership of ENI, a state- owned behemoth controlling an empire in the oil and energy sector, is already a shambles. Senior executives have been arrested, documents seized and inquiries begun into payoffs made by ENI to the political parties.

At Fiat, which is to Italian capitalism what Mr Andreotti is to politics, three senior executives have been arrested and questioned. Magistrates in Milan are also said to be looking at the affairs of Cesare Romiti, the second most powerful man in Fiat after its head, Gianni Agnelli.

The arrests continued yesterday, when Roberto D'Alessandro, the president of the state helicopter firm Agusta, was detained on the orders of Rome magistrates, accused of accepting a bribe linked to the sale of helicopters to another state agency.

Throughout the country, much business related to the public sector has come to a halt. 'A lot of bureaucrats and politicians are still demanding payoffs for everything and businesses are just too scared to pay any more,' said one executive in Milan, who preferred to remain anonymous.

THAT, laid bare, is the system as Italians knew it. How did such a regime survive at the heart of modern Europe? And why has it disintegrated now?

For decades the success of Christian Democracy lay in its ability to deliver economic growth and in its genius for drawing in political enemies to the trough of government patronage. It enjoyed support not only at home but abroad, where, as a bulwark against the powerful Communist Party, Mr Andreotti's party was a precious ally to the West. But the system had the internal weakness of all regimes not tempered by the regular exchange of power. Payments, favours and jobs for life became entrenched. Initiative waned, laziness and avarice were the order of the day.

In the Eighties a deficit-driven wave of growth helped to defeat terrorism and gave the post-war arrangement a brief new lease on life. Through this period, Italy presented a brilliant bella figura to the world. Foreign diplomats were dazzled by Mr Craxi's 'New Italy', and foreign journalists who wrote about the Mafia or corruption were deemed to be peddling 'old stereotypes'.

But the boom could not last. Worse, the Socialists proved to be clumsy managers of the system. They never understood that the old patron-client relationship depended upon mutual respect and should be oiled by courtesy and restraint.

Awash in new Eighties money and impatient to entrench themselves in power, the Socialists extracted homage but not loyalty. It was no accident that the Great Unravelling began with Socialist officials and Socialist money in Socialist Milan.

Pino Arlacchi, Italy's leading analyst of Mafia power, believes that his country is undergoing a historic renewal. 'The end of 'cohabitation' between the Mafia and the state, together with the fall of its ill-fated representatives, is due in part to the rise of a civic rebellion and the ascent of public consciousness on the part of millions of honest Italians who have waited for years, and too patiently, for this moment.'

Next Sunday there will be a referendum to end proportional representation in the senate, the signal for widespread electoral reform, probably new elections and perhaps a new government to face the dismal task of paying the bill for almost half a century of institutionalised greed. The talented Italian generation in waiting - in business, politics, journalism and law - may get the chance it has long lacked, The rest of Europe will be watching with rapt attention for another renaissance. This time, a real one.

(Photographs omitted)