IN THE second half of June, 1962, the Italian stock market suffered the worst slump since the “black week” of January, 1956. Shares dropped by an average of 26 percent, and the Italian shareholders lost $3.7 million. Although the almost contemporary slumps in the New York and London markets might have had some influence, the Italian debacle was fundamentally a consequence of Prime Minister Fanfani’s turn to the left and of the announcement of the government decision to nationalize the electrical industry. Electrical shares started falling and dragged other shares with them.

The svolta a sinistra, or “turn to the left,” had been looming over Italy for the last three years. The development was closely connected to the very composition of the Italian Parliament. Since the end of the war, the Italian political scene has been occupied quite thoroughly and consistently by the Christian Democrats, a middle-of-the-road party backed by the Catholic Church; by many of those who feared the advent of Communism more than anything else, and who saw in the Vatican the most effective bulwark against the Red peril; and by the women. The party attracts those who are afraid of Communism and who do not like the fascists either, those who are practicing Catholics or who have at least a feeling of respect for the moral authority and the wisdom of the Church, and those who are against too daring social reforms or experiments.

Government by coalition

The trouble with the Christian Democrats has always been that, although they emerged victorious from all the elections, they never quite managed to obtain an absolute working majority, either in the House of Deputies or in the Senate. At present, for instance, in the House of Deputies there are 273 Christian Democrats out of a total of 596 deputies —— about 46 percent. And the Christian Democrats have to grope around among the other eight parties to find support.

A look at the composition of the House of Deputies will explain the difficulties the Christian Democrats are still meeting. On the extreme left we find the Communists, Italy’s second largest party and the biggest Communist Party in western Europe, with 141 deputies. Then come the Nenni Socialists, numerically the third party, with 87 members. All the others are much smaller. In the center, besides the Christian Democrats, there are 18 Saragat Socialists, very similar to British Laborites; 6 Republicans, who are a leftover from the monarchy-versus-republic fight; and 12 independents. On the right there are 18 Liberals, 24 Neofascists, and 17 Monarchists.

Fanfani moves left

Whenever the Christian Democrats move either to the left or to the right, they gain the support of some parties but lose that of others. To complicate matters even more, they themselves are far from being compact, but are sharply divided into a right wing and a left wing, plus a few intermediate groups. If, for instance, a Christian Democrat Premier formed a coalition government with the Monarchists and the Neofascists, the party would split in two, with the left wing going over to the opposition. And if he called the Nenni Socialists in, the right wing would break away.

The Christian Democrats have tried all sorts of combinations. The best and most stable was the so-called quadripartito, led by the former Vatican librarian, the late Alcide De Gasperi, Italy’s greatest post-war statesman, and formed by the Christian Democrats, the Saragat Socialists, the Republicans, and the Liberals. It finally broke up when the strain between the Saragat Socialists, who were pressing for social reforms, and the Liberals, who represent free enterprise and the industrialist, became too strong.

The present swing of the Christian Democrat pendulum represents the maximum of how far to the left Italy’s Catholic party dares to go. The government formed on February 22, 1962, by Amintore Fanfani, leader of the Christian Democrat left wing, a 54-year-old, pocket-sized, sharpwitted, sharp-tongued university professor of economics, is made up of the Christian Democrats, the Saragat Socialists, and the Republicans. As such, it would not have a working majority and it would fall at the first call for a vote of confidence if it were not for the fact that it enjoys the support of the Nenni Socialists.

Nenni moves right

This new and revolutionary development in Italian politics would never have been possible if it had not been preceded and prepared for by two major events. First, as a consequence of the Hungarian Revolution and of Khrushchev’s denunciation of Stalin’s crimes, relations between the Nenni Socialists and the Communists have become very strained. A pact of “unity of action,” which linked the two Marxist parties, gradually faded into oblivion, and Pietro Nenni. a former Stalin-prize winner, was able to pledge his support to a Christian Democrat-led, center-left government, headed by a Catholic Premier.

Second, there has been, since John XXIII became Pope, a change in Vatican policies, which allowed a Catholic like Fanfani to come to terms with a Marxist like Nenni without incurring the wrath of the Church or even excommunication by the Holy Office. This does not mean that the Church has changed its ideology, nor that its opposition to Communism has been abandoned. But the Vatican line has become more flexible.

The deal Nenni and Fanfani made was, in its broad outlines, fairly simple: while the Christian Democrats promised to take the interests of the working class more to heart, the Nenni Socialists undertook not to renew their engagement — or, rather, morganatic marriage—to the Communists. The complete political isolation of the Communists was a fine goal, and Fanfani has achieved it, at least at a top party level. In the trade unions and in local administrations, the two Marxist parties still often collaborate. What remains to be seen is whether the price for the collaboration is too high.

On this fundamental point, Italian public opinion is very much divided. Some think that the swing to the left was inevitable, that Italy needs a stable government with a comfortable majority — which only Nenni’s 87 Socialist deputies can supply — in order to be able to carry out longterm programs with a certain security. They think that the cleavage between the prosperity of the industrial, progressive, hard-working north of Italy and the poverty of the agricultural, stagnant, depressed south is much too sharp to be endured any longer, and that only a center-left government can do something about it.

There is also a widespread feeling that Italy’s public administration needs to be cleaned up. A number of recent scandals have deeply shaken public confidence. The most sensational was connected with the building at Fiumicino of the new Rome international airport. It was completed after a great delay, and it cost S98 million, almost double the original estimate.

A parliamentary committee of inquiry discovered many serious irregularities in the procedure followed to deal out contracts. It also found that the then Air Force Minister, Randolfo Pacciardi, a Republican, had business connections with one of the chief contractors, Count Giuseppe Manfredi, from whom he had bought seven flats in a residential district of Rome. Bribes, nepotism, political interference, and pressure on the civil service are quite frequent, and so is tax evasion. The feeling is that only a strong government with strong leanings toward social welfare can carry out a cleanup.

How much state ownership?

As for the nationalization of the electrical industry, the supporters of Fanfani point out that there is nothing exceptional in it and that the Italian economy is already half controlled by the state. The railways, the tobacco industry, the big oil cartel ENI, the telephones, the radio, television, and even the football pools are state owned.

Besides, through IRI (Istituto per la Ricostruzione Industrial), the state has a controlling share in the steel industry, in the Ansaldo and other shipyards, in part of the electrical industry, in Alfa Romeo, in the air company Alitalia, in the shipping company Italia, and in many other big industrial concerns. The IRI group is run efficiently and at a profit, and the supporters of nationalization claim the electrical industry could be too.

Others, however, say that Fanfani is playing an extremely dangerous game, that he is making too many concessions to the Nenni Socialists, who are not keeping to their part of the deal but go on flirting secretly with the Communists, They add that the nationalization of the electrical industry is quite unnecessary, and that it is only a demagogic gesture to appease both Pietro Nenni and Giuseppe Saragat. And they conclude that at the very moment when the Italian economic miracle is in full bloom, when the industrial production is expanding at a rate superior to that of the United States, Russia, and even West Germany, the experiment of a center-left government is the worst thing that could happen to Italy.

The disastrous reaction of the stock market seems to prove them right. Although there will be no expropriation, and although the government has given a pledge to transform the electrical companies’ shares into state bonds and to guarantee a dividend not less than that of last year, shareholders were seized by panic and started selling in bulk. All other shares followed the downward trend.

The voters approve

But while the nationalization-ofeletricity project, which is expected to become effective by October, has been unfavorably received in financial quarters, Fanfani found some consolation in the political field. On June 10 and 11, elections were held in the cities of Rome, Naples, Pisa, and Foggia. They were municipal elections (in which issues of a local character played an important part) and involved only two and a half million voters out of a total population of over fifty million. But still they offered a large enough sample to indicate which way Italian public opinion has been moving.

The Christian Democrats lost about 5 percent of their votes, much less than had been prophesied when the plunge to the left was taken. It meant that the Italian Catholics were not too alarmed over Premier Fanfani’s flirtation with Pietro Nenni. The Saragat Socialists increased their votes considerably, while the Nenni Socialists held their ground. All told, the three main parties obtained the approval of the electorate.

There were other healthy signs. The Liberals, who represent the more moderate and enlightened section of the right, doubled their votes, mostly at the expense of the Monarchists. The Neofascists, who go under the official name of Movimento Sociale Italiano, made an imperceptible gain, but only thanks to a wild and madly expensive outburst of electoral propaganda .

The Communists suffered a slight setback, the first in a long time. Even more important in this respect is the continuous and regular decline of Communist Party membership and of readers of the Communist press. While their electoral strength has been only partly shaken, they are getting weaker as an organized body — no doubt a consequence of the isolation in which they find themselves.

As far as foreign policy is concerned, most members of the new coalition are anti-Communists. They are also, to various degrees, friends of America, supporters of NATO and of the Common Market, and favorable to a greater political, as well as economic, integration of Europe. Italy’s allegiance to NATO was unconditionally reaffirmed by Premier Fanfani in his June talks with Dean Rusk.

But, still, the very fact that Fanfani does not want to antagonize Nenni and his 87 Socialist deputies, who advocate a policy of neutrality, has been leading to a more amicable attitude toward Russia and to an intensification of business relations. Italy’s industrial fair in Moscow was a roaring success. At the end of June, Russian Vice Premier Kossyghin came to Italy to negotiate the setting up in Russia of a factory for tractors by Fiat. And Enrico Mattei, president of the state-owned oil company ENI, is buying more and more oil from Russia, despite the protests of U.S. senators and NATO officers.