How Italy joined the troubled economy club

Last week saw Berlusconi’s government pass a contentious bill that aims to restore confidence in Italy’s economy? Italy has one of the strongest markets in Europe and hosts some of the world’s top businesses but Julian Benson examines at the corruption and bureaucracy that threatens Italy’s economic stability.

Last week saw the Italian government rush through an austerity bill to protect the country from following Greece into a Euro bailout. Frustrating the left, the bill proposes €40bn worth of cuts in the public sector and a €30bn tax hike.
Warned by the IMF that its budget defect was too high, Italy had to do something to prevent needing a Greece style bailout. The Italian government hopes that pledging to cut the deficit by €70bn over the next three years will restore confidence in their economy.

Previously considered to be one of the most secure nations using the Euro, this recent shift is causing a lot of anxiety amongst the other nations. Germany, Europe’s biggest economy, is worried it will be called on to make another bailout. This is politically very dangerous for the German Chancellor, Angela Merkel, who will have to explain to German taxpayers why again they will have to pay for other member states mistakes.

The bill was passed through the upper house on Thursday by a vote of 161-135 and then through the lower house on Friday in a vote of 316-284. Such close votes reveal the contention of the bill. The centre left opposition are particularly against the bill and believe that the budget deficit is a result of Berlusconi’s government mishandling the financial crisis.
Bearing the brunt of the bill will be Italy’s poorest. Analyst’s predictions say that the cuts to public health alone could be around €10bn. The cuts could amount to as much as an extra €500 per Italian family. Local authorities will also receive less money, resulting in higher local taxes which could stimulate mass migration from the regions.

The bill faces s wider opposition away from who you would usually expect. As well as the leaders of the opposition parties is finance minister Guilio Tremonti. So respected is Tremonti in Italian finance that following a recent interview in which Berlusconi rubbished Tremonti and hinted he was on his way out Italian bonds fell in price. However Tremonti’s misgivings weren’t enough to sway the decision.

Noticed during the bill’s creation was a particular clause, number 37. The clause required that any compensation payments over €20m would need to go through the federal courts. The Italian supreme court is notoriously slow, in essence any payments that were to be dealt with through that system would disappear into the system. One such plus 20m payout is that which Fininvest’s €750m compensation payment owed to Carlo De Bernedetti. Fininvest is owned by Berlesconi.

The fine is punishment for bribing a judge in 1991. The company paid off one of the two judges managing a corporate buyout of Mandadori – Italy’s largest publishing house. De Benedetti was Berlusconi’s competitor. A €750m payout could sink one company and float the other. It is this sort of bureaucratic confusion and political interference which has massive ly damaged the Italian economy, and in a country notorious for its bureaucratic process this lends credence to the claims that the bill is to hide further corruption.

Julian Benson