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Saving Italy

Will the Sun Set on La Dolce Vita?

The combination of Italy’s flagging economy combined with the inactivity of the Berlusconi government in recent years had set alarm bells ringing for Italy’s Confindustria employers’ federation.

For employers’ federation boss Emma Marcegaglia, who has been shouting long and hard for genuine reforms to help Italy’s soggy economy pull itself out of the mire, the alarm bells must have become deafening as the nature of Italy’s austerity package emerged.

As soon as the terms of the austerity plans saw the light of day, Italy’s employers went from being concerned to terrified in the blink of a legislator’s eye.  They regarded the measures as being wholly insufficient, if not seriously damaging for Italy’s future.   Moreover, Italy’s employers are unconvinced that the public spending cut targets the government has set for Italy can be achieved.

It was also noted by Italy’s business community that the austerity package was not much more than a bunch of extra taxes, and that there was very little contained within it that was designed to stimulate Italy’s tottering economy.

Indeed, so unhappy were Italy’s employers that they gave the Berlusconi government an ultimatum – reform now or go home.  Putting their money where their productive month was, as well as the ultimatum, Italy’s employers came up with a Project for Italy’s Businesses.

The Sun Has Set on Italy's Economy
The Sun Has Set on Italy's Economy

Charitably, this ‘project’ could be regarded as being a few of helpful suggestions for Italy’s indecisive politicians, however the message Italy’s business leaders are really, and clearly, sending is that Italy’s current government should pull its finger out fast and get round to doing something constructive for the nation’s future.

Within the document it is noted that Italy’s credibility is very much on the line.  Additionally, the document points fingers at governance at Eurpoean level, stating that evident delays and uncertainty have contributed towards a further deterioration of what was an already depressed economic climate.

I have a copy of the employers’ federation’s Project for Italy’s Businesses document and it makes for interesting reading, especially as it illustrates just how much money Italy’s public sector money is throwing away.

Spendthrift Italy

From 2001 to 2010 public spending in Italy has grown from 41.8% to 46.7% of Italy’s GDP – 20 percentage points greater than Italy’s inflation rate.  So much for the caretaking skills of Italy’s Finance Minister Giulio Tremonti.

On top of spiraling public sector spending, the employers’ federation also notes that health services spending between 2000 and 2010 has increased massively – from 67.5 billion Euros to a whopping 113.5 billion Euros.  Such expenditure simply cannot be supported by an economy with virtually zero growth.  But there’s more.

Between 2000 and 2010, Italy’s public sector had been throwing money right, left and centre at the purchase of assets and services.  As a result, spending rocketed from 87.4 billion Euros to 137 billion Euros.  What has Italy’s finance minister been doing?

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The targets detailed in the Berlusconi government austerity package concerning the reduction of Italy’s national debt are regarded by the employer’s federation as being wildly optimistic unless, it is observed, much talked about measures designed to cut spending are actually implemented.

Public sector spending cuts, says the employer’s federation, should not be indiscriminate and need to be subject to a proper ‘spending review‘ (the actual words in English used in the employers’ federation’s press release, incidentally).

One of the aims of a spending review, aside from eliminating waste, should also be raising levels of efficiency in Italy’s extravegant public sector.

Uncollected Taxes

The document also notes the absurdity of the fact that 95% of Italy’s taxpayers declare an income of less than €50,000 a year.

When an employers’ federation starts telling a country’s government that levels of tax evasion are laughable, you know something is seriously wrong.

Five Points

The employers’ federation’s Project for Italy’s Businesses proposal addresses five key problem areas and suggests remedies.

The five crucial ‘saving Italy’ areas are:

  • Public sector spending and pensions
  • Fiscal reform
  • Selling off Italy’s assets
  • Liberalization and simplification
  • Infrastructure and Energy

I’ll take a look at each of these points in more detail in separate posts this week.

Let’s hope for Italy’s sake, the Berlusconi led government does take heed and do something.

Early signs are not good though.

The Berlusconi crowd does not seem to have go the message just yet and is still wasting valuable time thrashing out insignificant legislation, such as the Blogger ban bill, to keep Silvio Berlusconi out of trouble.

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