Italy’s economy is doing surprisingly well despite Silvio Berlusconi. In his third stint as Prime Minister, Berlusconi is doing as little as he did in the first two to solve Italy’s deep problems. But Italian businesses are managing to do so themselves, as Fiat’s grand scheme to take over German and US counterparts shows — no thanks to the man at the top.

In the past week Berlusconi has claimed to be the most popular politician in the world, dismissing Barack Obama’s pretensions. Berlusconi owed his election victories to his promise to Italians to give them a normal country. More than that, he came to power promising Italians that they could dream of being rich, like him. He is still rich; his imminent divorce will test the exact parameters of his wealth, but it is usually put at several billion dollars.

In his two main periods in office, he has failed to push through the reforms that the Italian economy desperately needs. The EU and the Organisation for Economic Co-operation and Development regularly catalogue Italy’s suffocating regulation of business, and failure to comply with EU rules brings regular, exasperated chastisement from Brussels.

State workers remain protected; others (particularly the young) cannot break into the jobs market. The universities take in too many students, and the ageing ranks of professors, tenure impregnable, teach them poorly. Berlusconi’s much touted pension reforms have been slight. Nor has he overhauled the budget as promised; taxation remains high, while resistance to spending cuts is huge. Public debt is projected to rise above 120 per cent of gross domestic product in 2010.

Yet the latest economic forecasts suggest that while the recession is hitting hard, Italy is still faring better than Germany and some others in Europe, partly because of manufacturers’ new agility. The catalyst looks more like fear of China than a response to the Prime Minister, however. Several years ago small northern businesses were terrified of the Chinese threat, almost to paralysis. Their response seemed to be only the wistful hope that “we will make slightly nicer shoes and handbags”, as one financial backer put it. Peter Mandelson, then the EU Trade Commissioner, seemed to spend much of that period passing through Bologna airport, listening to petitions to raise the barricades (rightly, he wouldn’t).

Now, there are more signs of resilience. While GDP will fall by 4.4 per cent this year, on International Monetary Fund projections, that is less sharp a drop than in Germany, even if (probably) worse than Britain or France. The banks are less exposed to the turmoil than in other large EU economies because of past caution in lending.

Berlusconi’s ability to help is limited by public debt. Even so, his preoccupation with the judicial system (in which he has a personal stake), a right-to-die case, and now his divorce, are distractions. Italy would be in better shape if he had pursued even a few more of his election promises.

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