Insight - Same showmanship, new script for Berlusconi in Cannes

CANNES, France Fri Nov 4, 2011 3:16pm GMT

Italy's Prime Minister Silvio Berlusconi talks to the media as he leaves a euro zone leaders summit in Brussels October 27, 2011. REUTERS/Francois Lenoir

Italy's Prime Minister Silvio Berlusconi talks to the media as he leaves a euro zone leaders summit in Brussels October 27, 2011.

Credit: Reuters/Francois Lenoir

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CANNES, France (Reuters) - On the surface it was the same old Silvio Berlusconi who arrived at the G20 summit in Cannes -- beaming for the cameras as he stepped from his limousine, an overcoat hanging theatrically from his shoulders, a confident hand raised.

Photographers captured the 75-year-old billionaire, whose private life makes headlines, appraising Argentine President Cristina Fernandez de Kirchner from behind with a smile.

But underneath, the ground was shifting dramatically for the prime minister as his European allies pressed him to accept much tighter oversight of his planned economic reforms, not just from the European Commission, but the IMF too.

It wasn't quite a case of the euro zone's third largest economy being pushed into IMF protection, but it came close, with the leaders of France, Germany and European institutions telling Berlusconi that if he wanted to restore credibility and win back market confidence, the IMF had to be involved.

The alternative might be Italy, with debts of 1.9 trillion euros (862 billion pounds), or 120 percent of GDP, following Greece down the path towards a financial bailout, perpetuating a debt crisis that threatens to tear the European single currency apart.

"In the general climate, with the lack of credibility the Italian government has, every mistake is punished on the spot," said a diplomat who participated in late-night talks with Berlusconi on Thursday, a meeting also attended by U.S. President Barack Obama and the IMF's Christine Lagarde.

"That's why very close monitoring is absolutely key, absolutely key... It took some discussion because some of the participants wanted to go even further than that, but the Italians, they can live with IMF surveillance."

'DREAMS COME TRUE'

There was initial and perhaps understandable reluctance from Italian authorities to accept such a move, which means a top eight economy being submitted to an intensive IMF health check every quarter, but ultimately it was accepted.

"Italy has decided on its own, on its own initiative, to ask the IMF to monitor implementation of its commitments," European Commission President Jose Manuel Barroso told a packed news conference in Cannes.

"I see this as evidence of how important Italy's reform process is for the country and for the euro zone as a whole."

That may be true, but it also represents a serious political blow for the Italian leader, who for years has promised to take determined steps to overhaul the economy's moribund pension system and labour market, only to fail.

With his political future in doubt, with former allies abandoning his coalition and the passage of legislation now almost exclusively riding on confidence votes, he had to sacrifice a degree of sovereignty to retain wider credibility.

Addressing a news conference shortly after Barroso spoke, Berlusconi sounded a note of defiance, saying he did not believe his time in office was coming to an end and that he welcomed closer IMF oversight, brushing off the intrusiveness.

"There is no limit to national sovereignty," he said.

A senior European official who has worked closely with him in recent months said patience had effectively run out, with the prime minister's word no longer holding good in Europe.

"He would say 'I've dreamed all my life of making these reforms to the economy, but it hasn't been possible because of the socialists and communists'," the official quoted Berlusconi as saying at one recent meeting, only to be told in reply:

"Silvio, it's time to make your dreams come true."

Berlusconi, who has managed to hold on to office despite multiple court cases involving his business affairs and private life, is a born political survivor. He may well retain power for longer, but he is unlikely to go on ignoring his obligations, EU sources said.

"He's fully aware of the seriousness of the situation," said one diplomat involved in meetings with him. "And if he wasn't in the beginning, he's fully aware now."

(Writing by Luke Baker; editing by Janet McBride)

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