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Is Italy Snubbing Cottarelli’s Common Sense Cuts?

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Italy’s Prime Minister Matteo Renzi has asked the European Union for a degree of flexibility to permit the nation to attempt to spend its way out of the economic doldrums it now finds itself in. The EU response was somewhat lukewarm and tied to the introduction of structural reforms. Such reforms, despite much talk, have yet to appear.

To help indebted Italy – public debt now stands at 132.6% of GDP – find the cash to fund measures to point the nation towards economic growth, much was made about a public spending review. According to a recent article on Reuters, “Italy’s public spending amounts to 51 percent of national output – the eighth highest proportion in the 28-nation European Union.” The Boot’s pensions spending is also well over that of Germany and the UK.

Super Mario Monti – Spending Review Mark One

Unelected former prime minister Mario Monti, once heralded as Italy’s saviour, initiated the public spending review process. Monti called in one Enrico Bondi to oversee the review. Bondi was given a remit which involved finding savings by making government purchasing more efficient, increasing the efficiency of government, and cutting the cost of labour, amongst other things. Well, Bondi’s work resulted in a package of measures which was supposed to save Italy €26 billion since it’s implementation in mid 2012 to the end of 2014.

Failure

Spending review mark one was a failure and the level of national debit continued to rise. Not helping matters was the fact that some of the measures proposed by the Monti government were blocked by Italy’s court of auditors and constitutional court. Other measures which may have generated savings were undone.

Monti’s two year attempt to sort Italy out achieved little, if anything. Despite Bondi’s work, Italy’s level of national debt has continued to climb.

Letta’s Spending Review Mark Two

After Monti was ousted, and inconclusive elections led to a huge mess, one Enrico Letta ended up as Italy’s prime minister and spending review mark two kicked off, albeit somewhat belatedly.

Reportedly at the behest of Enrico Letta, one Carlo Cottarelli was called in. To become Italy’s latest chief spending reviewer, Cottarelli resigned his position as the head of the International Monetary Fund’s fiscal affairs department. That he came from the IMF raised suspicions in Italy as to whether Italy brought Cottarelli in or whether Italy was ordered to appoint the ex-man from the IMF.

Anyway, regardless of the reasons for Cottarelli’s existence, he set about compiling a fresh set of recommendations to help Italy save money in November 2013. Cottarelli worked fast and hard and came up with what was required. It looked for a second or two that Italy would finally end up with real savings.  In the meantime, lacklustre, though to this Italy watcher, somewhat smug Letta, whose strategy appeared to be to wait and see whether the Monti governments measures would give Italy’s stodgy economy a boost, was ousted by Italy’s latest unelected premier, Matteo Renzi. Letta was ousted because his wait-and-see ploy was not working. Instead of healing, during Letta’s tenure, Italy’s decline continued.

Along came Mr Renzi with his promises of reforms in 100 days which would end Italy’s downward spiral. Renzi has since added a zero to his reform period which now stands at 1000 days, or ten times as long as he initially promised.

At about the same time as Mr Renzi took centre stage in Italy, ex-IMF man Carlo Cottarelli’s nine-month spending review mark two project came to an end. Cottarelli was ready to present his cost cutting tips for Italy to the nation’s government only Mr Renzi was not too keen to hear them. Renzi appeared to be highly reluctant to listen to Cottarelli’s recommendations adding that his people would do what needed to be done. The situation has remained the same even though Cottarelli’s cost cutting suggestions, the very few of which have been made public, appear to be eminently reasonable.

Cottarelli’s Cuts

One example is that Italy’s should be clamping down on fraudulent disabilities pensions which are also used as ‘rewards’ dished out by positions in Italy’s south to political ‘friends’. Such pensions have also, and inexplicably, risen massively.

Another cost cutting measure, which does not sound at all unreasonable, is for Italy’s Guardia di Finanza finance to drop its riot unit which is completely unnecessary seeing as Italy already has two other police forces, both of which possess riot units.  

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How many other similarly sensible suggestions are being ignored? We shall probably never know because Cottarelli’s 72-page report has not been published and may never be. Cottarelli himself is not happy.

Concerned Cottarelli

Last week, Cottarelli expressed his fear that savings, instead of being used to cut taxes in Italy, will instead be diverted and eaten up by government spending – which, of course, the review is supposed to limit. So unhappy was Mr Cottarelli, that he was on the point of resigning. Mr Renzi’s reaction to Cottarelli’s threat to go was more or less one of ‘good riddance’. With regard to Cottarelli’s criticism, Mr Renzi reiterated that his people would carry out a public spending review.

Renzi – Spending Review Mark Three?!

Is spending review version three on the cards? Maybe. Has anyone worked out the cost to Italy of these two so far abortive public spending reviews?

Then again, furbo Mr Renzi may implement Cottarelli’s suggestions and then take credit for them.

Surely Mr Renzi would not be so dastardly and underhanded, I hear some of you mutter. Well, he already has been.

After telling former prime minister Enrico Letta to keep calm, a few days later, Mr Renzi kicked him out. Then there’s the “reforms in 100 days” claim which has now become 1,000 days to which we can add Mr Renzi’s oft repeated claims that he was going to scrap Italy’s old guard. So far, he’s skimmed the surface and appears to have left most of the old guard pulling strings behind the scenes. That is the impression this Italy watcher has and the ongoing involvement of convict Silvio Berlusconi seems to bear such suspicions out. I digress. Back to the spending reviews which have not really had any effect on lowering public spending in Italy, nor do they appear to have scythed though Italy’s fields of red tape, for that matter.

Why is Renzi Reluctant to Cut?

Power games, apparently. The cuts could upset the balance of power in Italy and reduce the influence of Italy’s politicians. While this would be no bad thing, achieving it will require a miracle. Italy’s politicians hang on to power as if their lives depended upon it. Well, their bank balances do seem to do rather well out of their power plays. A handful get caught diverting public funds though.

Italy’s needs come way down to whatever list of priorities is referred to by the Boot’s power mongers. Political time wasting ever since Berlusconi was ousted back in late 2011 clearly demonstrates this. How many times has Italy’s President Napolitano called upon Italy’s politicians to act responsibly? I’ve lost count, and they never listened anyway.

What Will Happen to the Cottarelli Cuts?

Will Cottarelli’s recommendations ever be implemented? Who knows. However, if they are not, the flexibility Mr Renzi has been requesting from the European Union may not be forthcoming. Arguably, Italy has been given more than enough leeway over the years, so further flexibility may be hard to come by, especially if Italy’s massive public debt reaches unmanageable levels.

Interest payments alone on Italy’s huge public debt have cost the nation a pretty penny: €1.65 trillion since 1993, stated reports in Italy’s press today.

In addition to Europe’s discontent with Italy’s games, the IMF may not be too happy either. Noises from the IMF direction may serve to indicate that Cottarelli’s was imposed on Italy and not that Italy asked him to lend a helping, if well paid, hand.

Meanwhile, Beppe Grillo, the vocal leader of the anti-establishment 5 Star Movement has predicted that Italy will need a bailout this coming winter. Not all of Beppe Grillo’s forecasts come to pass, though some have. Grillo predicted that Italian giant Parmalat would go bust and it did. He has also advised Europe not to give funds to Italy because they tend to end up in mafia bank accounts. This has already happened.

By the way, Mr Renzi’s relationship with his Economy minister, Mr Padoan, appears to be souring. It’s not only Cottarelli who’s worried about the direction in which Italy is heading, it seems.

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