Italy's chance to tear at the web

It seemed as if the ghost of Bettino Craxi was stalking Italy last week when Giuseppe Mussari, former chairman of Monte dei Paschi di Siena, was pelted with coins by demonstrators furious at the suspected crimes that crippled his bank.

Almost 20 years ago Craxi, a former prime minister, suffered a similar bombardment outside a Rome hotel because of his involvement in a huge corruption scandal that destroyed Italy's post-1945 party political system. This scandal, known as tangentopoli, or bribesville, resulted in a prison sentence for Craxi. But he never served it because he fled to Tunisia, where he died in exile.

As Italians prepare to vote in parliamentary elections on Sunday, one question that ought to preoccupy investors is whether the present crop of business scandals, intertwined as they are with chronic abuses in national, regional and municipal politics, is on the same scale as tangentopoli. I say "ought to preoccupy”, because the relatively low level of Italian sovereign bond yields and credit default swaps suggests that investors are losing no sleep over the scandals or how they will shape the post-election political environment. This attitude is too laid-back by half. For the scandals actually tell us a great deal about Italy's capacity to reform itself, raise economic growth, create jobs, secure its place in the eurozone and, as a happy by-product, reward investors.

Among those who see disturbing parallels between today's scandals and the corruption uncovered by prosecutors in the early 1990s are two of Italy's and Europe's most distinguished public figures: Mario Monti, the economics professor and EU commissioner turned prime minister, and Giorgio Napolitano, the enlightened former communist who has served as Italy's head of state since 2006. Put bluntly, if these two men are worried, investors should take notice.

The three largest scandals of the present day are subtly different from each other. At Monte dei Paschi, investigators are looking at complex financial transactions that appear to have been devised for the purpose of concealing losses incurred as a consequence of over-ambitious expansion. However, poor governance at the bank arose ultimately from the fact that local centre-left political forces exploited Monte dei Paschi as a cash cow to consolidate their hold on the city of Siena.

There is a political dimension, too, in the Finmeccanica affair. This centres on alleged bribes paid to sweeten the €560 million sale by the Italian defence and aerospace company's AgustaWestland unit of 12 helicopters to India. To outsiders, the scandal may smell as familiar as any crooked international arms deal of the past 50 years. But the twist is that Italian prosecutors suspect a slice of the slush fund may have found its way to the Northern League, a political party with ties to Giuseppe Orsi, Finmeccanica's ex-chief executive, who was arrested last week. Orsi denies involvement in bribery and denies channelling money to the Northern League.

In the third scandal, which concerns Saipem, an oil services group, and alleged bribes paid to win contracts in Algeria, there is no party political element. But the shadow of the Italian state looms large over the case.

Just as the state owns 32 per cent of Finmeccanica, so the majority shareholder in Saipem is Eni, the energy group in which the state has a controlling stake. The allegations of corruption not only forced the resignation in December of Pietro Franco Tali, Saipem's chief executive since 2000, but have caused Paolo Scaroni, Eni's chief executive, to be placed under investigation. Each man denies wrongdoing.

Truly, the Saipem affair brings us full circle. In 1992-93 one businessman arrested in the political party funding scandals that defined tangentopoli was none other than Scaroni. After making a clean breast of matters with a plea bargain that averted a spell in prison, Scaroni has enjoyed a flourishing career as chief executive first of Pilkington, the UK-based glassmaker, then of Enel, Italy's dominant electricity producer, and finally of Eni.

As in the 1990s, today's scandals illustrate that economic reform is paralysed in Italy by a web of mutually reinforcing interests that stretches across politics, publicly owned companies, banks, the media and all tiers of state administration. At a minimum it is necessary to eliminate unnecessary tiers of government, reduce the number of professional politicians and cut the link between political parties and state-owned enterprises. If Sunday's election produces a prime minister who successfully delivers these reforms, he or she deserves to be more famous than the next pope.

Tony Barber is the Financial Times' Europe editor.

Copyright the Financial Times 2013.