Fourteen months ago, Italy was definitely in trouble.  Some called it a “great big Greece,” where employers could not terminate employees in many jobs without regulatory approval and where tax cheats openly boasted about the taxes they didn’t pay — about $160 billion each year.  In fact, their elected leader was also a convicted tax cheat, who was appealing his four year sentence to prison.

As Italy is the third largest country in Europe, it is definitely too big to fail without hurting the world economy.  When it began having trouble refinancing its existing national debt, their legislature conspired with the European Union to replace their colorful elected leader with a solid technocrat/economist to impose some degree of austerity on the free-spending government.  Since then, the Italian economy has stabilized.  Borrowing costs have gone down.  However, unemployment is up to a thirteen-year-high of 11.2%, but it is up less than expected and less than half the unemployment rate in Spain or Greece.  And, tax evasion is actually falling.  While the economy is in a minor (1-3%) recession, that reflects wider European economic conditions more than the austerity imposed by the technocratic leader, Mario Monti, who was nicknamed “SuperMario” for stabilizing the Italian economy.  He was hailed by both bankers and intellectuals alike as a hero at this year’s World Economic Forum in Davos.

The national election for Italy is this weekend.  Unfortunately, Italian voters are not showing that appreciation for SuperMario, who is now running in fourth place.  The bitter irony is that his predecessor, Silvio Berlusconi, is running a close second.  Did I mention that, in addition to his conviction for tax evasion, this 79-year-old man has also been charged with paying an underage girl for sex?

If an American President badly damaged the economy, was convicted of tax evasion, facing possible jail time, and charged with having sex with an underage girl, what are the odds he would be reelected?

My first thought is that the Italians have a great sense of humor, but then I realized Berlusconi has a good chance of being reelected, because he has promised to pardon all tax evaders and to abolish real estate taxes for everybody.  So, he promises to use government money to bribe the voters to reelect the man who already ran the economy into the ditch.

Please tell me this is an Italian joke!  Italy is too big to revert to its “bad old ways.”  The reelection of Berlusconi is a threat to the whole European Union, which, as we have seen, can severely impact the U.S. stock market.

I’ll be watching Bloomberg late Sunday night to see how this election is decided.

A-B-B . . . Anybody but Berlusconi!