Ciao, baby! Why Italy just can't say no to Silvio

They must be among the harshest claims ever lodged against a European prime minister, and this month they were made in public, before Sicilian public prosecutors, and backed by documentary evidence. The cornerstone of the fortune of the tycoon who has ruled Italy for most of the past 15 years was money from the Mafia, which Silvio Berlusconi used to build his first housing estate, the project which made him rich and famous. And when, in 1993, after the meltdown of Italy's major political parties in a corruption scandal, Berlusconi decided to launch himself into politics, it was with the support of Bernardo Provenzano, the capo di capi of the Cosa Nostra who, 13 years later, was finally arrested after many years on the run on the very day that Berlusconi lost the general election.

If these charges sound familiar, it is because they have been doing the rounds for years, always fiercely denied by Berlusconi's people, never irrefutably proved but never going away because they helped to explain what was otherwise inexplicable: Berlusconi's dramatic ascent in the mid-Seventies from small-time property speculation in the suburbs of Milan to the ranks of the nation's richest; and the equally dramatic success of his first political party, Forza Italia (FI), founded amid widespread derision in 1993, after the meltdown of the existing parties in a bribery scandal.

The man on the stand was Massimo Ciancimino, youngest son of the late Vito Ciancimino, who as the deeply corrupt and vastly wealthy mayor of Palermo was for many years the reliable hinge between the Mafia and Italy's political class. In court last week he handed over a letter in his father's hand, addressed to Marcello Dell'Utri, Berlusconi's right-hand man since the beginning of his career and now fighting a nine-year jail sentence for Mafia association. The letter, reproduced the next day in the Italian press, was a blackmail note, threatening to reveal the secrets of FI's origins if he was not suitably paid off, for example with the gift of his own television channel.

The deposition by Ciancimino Jr was remarkable, but not as remarkable as its reception. It was splashed across the front pages of the left-leaning Italian dailies, predictably enough, but barely caused a ripple elsewhere. No magistrate issued a warrant for Berlusconi's arrest or announced the start of committal proceedings. No opposition politicians leapt to their feet to demand his resignation. The foreign papers which only months ago were keenly predicting his demise in the aftermath of various sex scandals, barely noticed it. "I told my desk but you could practically hear them yawning at the other end," said one veteran correspondent. "They'd heard it all before." Berlusconi himself had no comment to make as his career was again dragged through the mire; no questions were permitted at a press conference he held that day, and he made no mention of the allegations during his remarks to journalists. La Repubblica reported him as saying to his confidants: "These fibs by Ciancimino are so out of this world, they will boomerang." He was also said to have pointed out sardonically how the revelations had been made "as usual" just before the regional elections due next month.

Ronald Reagan was known as the Teflon president, but Berlusconi's ability to shrug off misfortune beggars such metaphors. Ten months ago, as I was preparing to leave Rome, Berlusconi seemed doomed. It was his wife Veronica that had done for him: her announcement last April that she wanted a divorce seemed to break the spell in which he had held his country hypnotised for years. Suddenly, it seemed, people began to see him for what he was. Veronica's comments about him frequenting under-age girls, her condemnation of the "trash" – buxom showgirls – he wanted to put up for election to the European parliament, her cryptic remark that "my husband is not well" – all this from the woman who had stood by her man stoically for nigh on 30 years, cast him in a new and ghastly light. He might be mega-rich, brilliant, energetic, charismatic – but what a creep! What an appalling character to have thrown your lot in with! And what horrors might that pregnant phrase "non sta bene" – "he's not well" – contain? What raptures of megalomania, sadism or psychosis might the unlucky Veronica have been privy to?

As in her rare public eruptions in the past, Veronica was highly economical in her remarks, but they unleashed a flood of revelations that threatened to engulf him – or so it seemed to us all at the time. There was his mysterious appearance at the 18th birthday of Noemi Letizia, the Neapolitan underwear model, the event that seems to have decided Veronica, because he was "frequenting minors" (and incidentally, she claimed, had never bothered to show up at his own children's coming-of-age parties) that she had had enough; then the long succession of tales of harem parties in Rome and in Sardinia, the toe-curling accounts of how the 73-year-old premier surrounded himself with pouting lovelies and made them watch videos of him rubbing flesh with world leaders, the equally nauseating report from Patrizia D'Addario of her hard day's night with the tireless mogul, and so on. How much more of it could Italian voters take? Wouldn't somebody finally see sense and call a halt, force him up the gangplank of one of his many yachts and cast him adrift?

But nobody did. Berlusconi brazened it all out, as he has brazened out so much before. He even succeeded in besting the Catholic church, which takes some doing for an Italian politician.

For Berlusconi and his advisers, the most worrying indication that the sex scandals might be having an effect was the reaction of the Catholic church. La Famiglia Cristiana, the country's most popular weekly, began harrumphing about his morality – a danger sign indeed, since Berlusconi throughout his political career has depended, like all Italy's post-war rulers, on the quiet complicity of the church, which remains in many respects the most powerful force in the land. Then, even more seriously, L'Avvenire, the daily paper of the Italian Bishops' Association, the mouthpiece of the church hierarchy, began to take the same line. How much longer before The Pope himself stepped in? But Berlusconi, in one of the boldest moves of his political life, called their bluff.

The church has long been aware that, whatever his personal foibles, Berlusconi is the best available protector of their interests among Italy's potential rulers, being always careful to avoid promoting anything, such as rights for gays, living wills or more relaxed rules on abortion or contraception, which might irritate the monsignors. Now he demonstrated to them that mud, once flung, could always be flung back: Il Giornale, the daily paper known as the Berlusconi house journal and owned by his brother, splashed on claims that the editor of L'Avvenire, Dino Boffo, was a flamboyant homosexual. The man in question denied it heatedly but resigned within days. And from that point, it seems, the heat was off.

Six months later I returned to Italy to find the place transformed: the Vatican in disarray over the Boffo affair, Veronica forced onto the back foot as Berlusconi threatens to evict her, and all talk of him being bounced out of power on account of his sexual shenanigans just so much dirty water under the bridge.

The bad news is piling up for him again – on the eve of regional elections, as he points out. The claims that he bribed David Mills to lie to judges about his offshore shell companies will be aired in two different courts next week, and when the case reopens in Milan he has said he will attend, though I wouldn't hold your breath. Meanwhile, trouble has now arrived from a quite different quarter.

Guido Bertolaso has been Berlusconi's great discovery since returning to power in 2008. A wiry, pensive, perennially scowling figure, the head of Italy's Civil Protection service was the personification of the Prime Minister's promise that he was serious about hacking through the bureaucracy and tackling the country's intractable problems.

It was Bertolaso who stood by Berlusconi's side in Naples two years ago, after the general election, and vowed to clear the city's mountains of rubbish – and did so. It was Bertolaso who last April accompanied the Prime Minister to the earthquake city of L'Aquila day after day and promised the disaster victims that they would be rehoused and the city rebuilt at top speed and without a whiff of corruption.

Berlusconi sold Bertolaso to the public as supremely honest, hard-working, and reliable, the can-do Puritan who would complement the jolly cavalier. And thanks to the Prime Minister's patronage, La Protezione Civile became much the most privileged of the country's emergency services – to the disgust of the others – and was well on the way to being privatised.

Inevitably, Mr Clean wasn't all that he seemed. After bugging Bertolaso's phone and those of a number of his business friends, magistrates in Florence have claimed to have found fistfuls of audio tapes – the juicy transcripts have been filling the Italian newspapers – which allegedly suggest that all the time Bertolaso was in cahoots with sleazy developers who added tens of millions of Euros to their construction bills and repaid Berlusconi's man for his discretion by allegedly laying on a "high-quality" Brazilian prostitute called Monica to service him.

The plan to privatise the service Bertolaso heads is now on hold; the man himself hangs on by the fingernails. But his patron has suffered no discernible damage from the disgrace of his trusty lieutenant. Nobody from the opposition jumps up to challenge his judgement, to demand that the Prime Minister should account for how and why his chosen man was so wildly overpromoted.

Berlusconi has always been passionate about palaces. Back in 2002 a diplomat told me that there was no doubt that Berlusconi planned to conclude his political career as President of the Republic. How could we be sure? Because the job comes with a fantastic house, Il Quirinale, the former palace of the pope when the popes ruled half Italy. Berlusconi has long had his eye on it.

At the last count, according to Corriere della Sera, Berlusconi has 27 homes, ranging from grandiose villas to real, regal palaces. While Bertolaso was twisting in the wind and Ciancimino was yarning about the Mafia, the Prime Minister was proudly unveiling the latest addition to his collection: Villa Gernetto, price tag €40m (£34.8m) an 18th-century palace boasting 36 hectares of woods and a terrace overlooking the valley of the Lambro north of Milan which he plans to convert into his planned "university of liberal studies", but where he will retain a wing for his own use.

A few days later, his mind turned to property once again. He let it be known that he was fed up with the magnificent Villa San Martino at Arcore, north of Milan, which has been his main base since his lawyer Cesare Previti cajoled its former owner into selling it at a knockdown price 30 years back. Now, it was reported, he wants to get his hands on Villa Belvedere at Macherio, a few kilometres away in the same area of La Braganza.

The significance of this is that Belvedere has been his wife Veronica's main home for decades, the place where she raised their three children. Berlusconi is now demanding it back – apparently in a move intended to persuade her to lower her extravagant alimony demand of €43m per year. He is said to be proposing that if she comes down to something more reasonable, he won't send round the bailiffs.

For years Berlusconi has behaved more like a Roman emperor than an elected Prime Minister, but in the autumn of his years the tendency has become even more extreme. But the dismaying element today is the extent to which his adversaries let him get away with it: the last person to land a blow on him was the unbalanced character who hurled a bronze model of Milan's Duomo in his face at New Year. No one could claim that Italy was buoyant with Berlusconi at its head. Even the sort of phoney and palsied recovery that Britain experienced after the crash has eluded it. Industrial output plummeted by more than 17 per cent last year, and the nation's public debt of €1,663bn is the third highest in the world. Add this to the sleaze piling up on all sides and one would expect Berlusconi to get a terrible drubbing in the coming polls.

Yet that is unlikely to happen – and not only because of the feebleness of the opposition. As a new book spells out, Berlusconi has a hold over a huge swathe of his electorate, who will vote for him no matter what.

According to the Italian writer Curzio Maltese, in The Bubble: The dangerous end of the Berlusconian dream, ever since he entered politics Berlusconi has appealed, more or less openly, to the nation's millions of tax evaders. And this is one constituency that he has never disappointed.

Long before Berlusconi entered politics, Italians were well aware of his propensity for cutting corners; the stories about him bribing air traffic controllers to move the Milan flight path away from his first housing estate, of putting a nosy member of the Tax Police on his staff, were famous. Once he was elected, people hoped he would allow them the same sort of latitude, and he has never disappointed them.

Maltese quotes an antique dealer in Verona: "Here, from the day Berlusca won the election, people stopped issuing receipts ... Artisans, plumbers, medical consultants, shopkeepers, all of them. Restaurateurs and hotel owners issue fake ones." This is the one policy that ensures rock-solid support, he says. "Anti-communism, the church and the other things, even the question of television channel ownership, none of them matter. The essential point is that with him, you can evade serenely. They voted Berlusconi out of fear that [ex-centre-left leader Romano] Prodi would send in the Revenue." And they were right to do so: since Berlusconi dislodged Prodi in 2008, tax revenue has fallen steeply, leaving a hole of €14bn per year.

"Italy," Maltese claims, "is the biggest tax haven in the world ... Evasion has already crossed the threshold of €300 billion per year, 22 per cent of GDP, twice the European average ... A civil war is underway between one half of the population that exploits the other half".

A wholly disproportionate share of Italy's revenue, 78 per cent, comes from employees, Maltese points out, and only 22 per cent from the rest: industrialists, shopkeepers, the professions, the self-employed. He points out the statistical absurdities produced by the evaders' lies: an old-age pensioner living on €16,100 a year is theoretically far better off than a restaurant owner or butcher (average declared income €14,000), two-and-a-half times better off than the nation's bakers and greengrocers, and not that much worse off than the owners of textile and construction companies.

Berlusconi spoke to his loyal supporters, the millions of evaders, in simple code. "Fear of the Fiscal Police he transfigured into fear of communism," Maltese argues. "The license to evade was sublimated into defence of liberalism and liberty. But it was pretty clear what kind of liberty he was referring to: Berlusconi struck a tacit political deal with the mass of evaders, one which he has always honoured." He showed the sincerity of his desire to help this sector of the electorate when, on returning to power in 2008, he promptly sacked the tax expert who had succeeded in recovering €23bn in unpaid tax for the government of Romano Prodi, along with his senior colleagues.

Berlusconi has incarnated the Italian state for most of the past 15 years – but according to Maltese he has all along he has in fact been the tenacious enemy of the state, tacitly committed to helping those who have grown rich, or who would like to grow rich, by avoiding paying their legal contributions. That is a persuasive explanation for why his popularity holds up, no matter what he gets up to and no matter how poorly the Italian economy performs. Every time another allegation of illegality against him surfaces, it is further confirmation for the evaders that he is their man; every time the economy shrinks another percentile, those who have managed to stay out of the way of the tax police thank their lucky stars that the country's leader is on their side.

Under Blair and Brown, the British Government has demonstrated morally dubious equivocation towards the resident but non-domiciled kleptocracy, including those members of it that sit in the House of Lords. In Italy they do these things more democratically: the indulgence of Berlusconi for those with a horror of tax – those who share the late hotelier Leona Helmsley's belief that tax is for little people – extends across half the population, including many of the little people themselves.

Italy today is devouring its own entrails. Private affluence and public squalor; constantly shrinking budgets which inflict vicious blows on schools and universities and hospitals and museums while the entrenched gerontocracies which preside over them are untouched; talented and vigorous youth who flee abroad to find study and work opportunities in ever-greater numbers, while their less-enterprising contemporaries struggle to make ends meet in jobs with miserable pay and no security; organised crime which constantly extends its reach; fear and hatred of immigrants, cynically encouraged by politicians in the government: this is Berlusconi's dismal legacy.

Among the other "grands projets" with which Guido Bertolaso, Berlusconi's right-hand man in Civil Protection, was entrusted were the extravaganzas planned for next year to celebrate the 150th anniversary of Italian unification. Perhaps they would be better off cancelling them. One of the founders of united Italy famously remarked, "We have made Italy, now we must make the Italians." The job was only ever half done, and Berlusconi has helped to loosen the bands of nationhood even further. If a considerable part of being a citizen consists in yielding unto Caesar what is Caesar's, it is not only the Italian exchequer that has suffered from Silvio's generosity to the evaders. The spirit of the nation has been hammered, too.

Silvioworld: The story so far...

February 2002 During an official photocall at an EU foreign ministers' conference, Berlusconi makes a vulgar gesture signifying "cuckold" behind the head of the Spanish foreign minister Josep Piqué.

September 2003 In an interview with Boris Johnson, then the editor of The Spectator, Berlusconi claims that Benito Mussolini "had been a benign dictator", who didn't murder his opponents, but sent them "on holiday".

March 2006 Berlusconi is forced to defend his claim that Chinese Communists used to eat children. " ... In the Chinese time of Mao, they did not eat children, but had them boiled to fertilise the fields," he concedes.

January 2007 Berlusconi's wife, Veronica Lario, publicly denounces him after he tells former showgirl and future MP Mara Carfagna at an awards dinner: "If I weren't married, I would marry you immediately".

April 2008 Berlusconi claims that his female cabinet members are better looking than their left-wing counterparts, provoking an angry reaction from Italian centre-left parties. "The left has no taste, even when it comes to women," he declares.

November 2008 Two days after Barack Obama became the first African-American US President, Berlusconi compliments him on his "suntan"

November 2008 Berlusconi plays "hide-and-seek" while hosting the German Chancellor Angela Merkel, hiding behind a column while she walks past. Witnesses say he called out "coo coo", prompting Mrs Merkel to turn around and say: "Oh, Silvio."

April 2009 At a camp in L'Aquila housing some of the 30,000 people who lost their homes in an earthquake, he says to an African priest: "Hold me tight and call me papa," before asking city councillor Lia Beltrami: "Can I fondle you?"

April 2009 Berlusconi appears to annoy the Queen at a photo session during the G20 summit in London. Berlusconi shouts "Mr Obama, Mr. Obama!" repeatedly, prompting the monarch to turn around and chastise him in front of the other heads of state. "What is it? Why does he have to shout?"

April 2009 At a Nato meeting in Kehl, near Strasbourg, Berlusconi is seen talking on his mobile phone, while German Chancellor Angela Merkel and other Nato leaders are kept waiting for him for an official photo on a bridge over the Rhine.

April 2009 At a press conference in Sardinia with Vladimir Putin, a Russian journalist asks an unwelcome question. Berlusconi intervenes with a gesture that imitates a gunman shooting. The reporter is said to be reduced to tears.

May 2009 Having denounced him over his links to young women, and amid a torrent of allegations about links to escort girls, Berlusconi's long-suffering wife Veronica Lario finally – and very publicly – files for divorce.