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Italian Prime Minister Silvio Berlusconi and his centre-right government are no slouches in the buffoonery and scandal departments. The political headlines have been dominated by the lurid stories of official residences full of women, some allegedly of the rental variety, and corruptions scandals, including court trials against Mr. Berlusconi. This week his industry minister, Claudio Scajola, resigned amid allegations (which he denied) that he had bought a swank Rome apartment using money generously donated by a businessman who was arrested in February.

So what has Mr. Berlusconi done right since his re-election two years ago? Give the man credit, and lots of it - he had the good sense to appoint Giulio Tremonti as his economy and finance minister. So far Mr. Tremonti's deft handling of the public purse has prevented Italy from assuming Greek status, defying the economists who routinely fling it into the PIIGS category. The rude acronym stands for Portugal, Ireland, Italy and Greece, the four countries whose horrendous debts arguably make them default or bailout candidates.

Last week Greece glommed onto a €110-billion ($145.4-billion) bailout offered by the European Union and the International Monetary Fund. One pig has gone to slaughter; three to go. Don't count on it, says Mr. Tremonti.

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Mr. Tremonti is a remarkable survivor in the gladiator pit of Italian politics. A 62-year-old law professor, he has been finance minister no fewer than four times since the mid-1990s. He was the victim of an internal squabble in 2004, during Mr. Berlusconi's second government, and was pushed aside. A year later Mr. Tremonti was back to put his tax-cutting agenda into motion. Taxes of every description came down. When Mr. Berlusconi won his third election in 2008, Mr. Tremonti returned yet again.

Other than cutting taxes in an effort to make Italy more competitive, Mr. Tremonti's other talent was being able to stand up to Mr. Berlusconi. When the Great Recession hit - Italy's gross domestic product fell 5 per cent in 2009 - the Prime Minister put a lot of pressure on Mr. Tremonti to use more tax cuts, coupled with a fat spending package, to stimulate the economy.

To his credit, Mr. Tremonti resisted. Italy, with a debt-to-GDP ratio of 115 per cent, one of the highest in the world, simply could not afford to spend with abandon. He was also clever. Other European Union countries opened the spending spigots to keep unemployment rates from achieving double-digit status. Perhaps Mr. Tremonti knew their stimulus packages would carry Italy along with it. In the Italian finance ministry, there is such a thing as a free lunch.

Mr. Tremonti had other advantages. Italian banks, which are among Europe's largest, are surprisingly well-regulated and didn't require bailouts. Italian households have high savings rates, and pension reform was well in place. Italy has a rapidly aging population and a very low birth rate (immigration keeps the 60 million population from plunging). The cost of supporting armies of pensioners will go up, of course, but the pace of increase won't be as alarmingly fast as in some other countries.

Mr. Tremonti's refusal to write stimulus cheques kept Italy's budget deficit below the EU average. Lat year it stood at 5.3 per cent of GDP and is forecast to fall slightly this year before reaching the EU's 3-per-cent limit in 2012. Compare Italy's deficit with most other EU countries and the country seems a model of fiscal rectitude. Greece's deficit was 13.6 per cent, Britain's 11.5 per cent, Spain's 11.2 per cent and France's 7.5 per cent.

Paradoxically, the sheer size of Italy's debt markets - its public debt is €1.7-trillion, or seven times greater than Greece's - gives the bonds enviable liquidity and resiliency. The Italian bond market is Europe's biggest, and the third-largest in the world. It is transparent and investors like the fact that Italy sells bonds on a regular schedule, as opposed to the sporadic sales found in some other countries. There is always a market for Italian bonds.

Now the bad news. Italy's enormous debt gives it little flexibility. According to the Carnegie Endowment for International Peace, the country must spend a hefty 4.5 per cent of GDP on debt interest alone. That's the equivalent of its public education budget. Debt payments are bound to go higher because the debt is rising faster than economic growth. Toss in the likelihood of higher interest rates and you have a recipe for economic strain for years.

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Don't think Greece - think Japan. Like Japan, Italy is becoming a high-debt country trapped in chronically low growth. Unlike Japan, Italy lacks a currency that can be devalued to make itself competitive quickly. Mr. Tremonti may have spared Italy from the worst of the Greek contagion. But if he wants to save Italy from slug status, he'll have to launch a competitive revolution. Competition in every industry needs to be encouraged. Red tape has to be eliminated. Regulations have to be streamlined. The bloated and inefficient civil service has to be slimmed down. All this will take years, and experience says the effort won't succeed.

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