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Europe, Italy

Italy’s troubles are far from over

Armageddon averted. A lifeline in the sea of speculation. Greece and hence Italy saved for another day.

The days leading up to Thursday’s summit of European leaders were dramatic. None more so than for Italy, which, with the second largest public debt after Greece, had suddenly been projected into the centre of the European sovereign debt crisis.

It was against this backdrop that on
14 July the parliament in Rome passed in record time a Euros 48 billion (£42 billion)  austerity package, taking the knife to health, education, pensions and many other areas of public spending upon which (the majority of) middle and working class people depend.

Perhaps most controversially, after the June referendum in which millions rejected privatisation of water distribution, Rome gave the green light for the sell off of national energy companies, the post office and railways, and local government controlled public services, including transport.

Italy’s opposition called it a “shamelessly class” budget. And indeed it was. For on top of the above mentioned measures, Berlusconi cut taxes for high income earners. And yet again, the Government did nothing about the tax evasion and avoidance by businesses and the wealthy that robs the Italian state of Euros 100 billion (£88.1 billion) a year.

In one of Europe’s most polarised countries in terms of wealth the gap between the haves and the have-nots is about to get wider. Already the top ten per cent are 12 times better off than the bottom ten per cent, making Italy the least equal country in western Europe – after the UK. According another measure of income inequality, the Gini coefficient, Italy is also a laggard with respect to the big European powers, France and Germany.

Some more concrete examples may help to get a sense of the disparity of wealth. Fiat’s chief executive Sergio Marchionne, with an income of Euros 4.8 million in 2009, took home 133 times one of his workers, who earned Euros 36,000 on average. Luca di Montezemolo, chairman of Ferrari, pocketed the same, on average, as 671 pensioners. Prime minister Silvio Berlusconi with Euros 126.4 million dividends from his huge business empire in 2009…well, the multiples become meaningless.

Official figures suggest that overall, poverty has stabilised in recent years, even if 3.2 million falling below the line (defined as the “minimium necessary” for “a minimally acceptable life”) is hardly something to boast about. But life is becoming tougher for people in the less developed South, which being more dependent on public spending has been hit harder by cuts. And its getting harder for larger families, whose young members been hit more by unemployment, and unlike their counterparts in much of northern Europe, do not have the same welfare safety net.

If things have got worse since the 2008 banking crisis, a squeeze on the middle and working class is a longer trend. The build up to the Euro in the 1990s saw a big cut in spending and mass privatisations to cut Italy debt, leading to job cuts, more precarious forms of employment and, on the other end of the scale, the creation of a new class of “super-managers” running former or partially privatised companies.

The subsequent introduction of the Single Currency in 2001 also resulted in a big transfer of wealth from ordinary Italians, to businesses as unscrupulous shopkeepers and other retailers took advantage of disorientated shoppers and increased their prices.

Furthermore, without its own currency Italy didn’t have the tool of devaluation to make its products more competitive abroad. So Italian industry either shut up shop, or drove down wages, assisted by ‘reforms’ delivering an increasingly ‘flexible’ labour market.

As a result the economy has stagnated. And employees and a growing sub-class of workers on short term and other forms of insecure contracts have paid the price.

Berlusconi, in power on and off since 1994, certainly played his part in the increasing impoverishment of the Italian people and the Italian state. With every decision he makes constituting a conflict of interest – he has interests in a wide variety of sectors, not only a monopoly over the media – and a continuing stream of legal problems to fight off, he has at best been too distracted with looking after number one to be thinking about anybody else.

At worse, his craven quest for power has had the most perverse outcomes. Most dramatically on the eve of the 2008 election when he promised – to a shocked nation and the incredulity of most of his own allies – to eliminate council tax. His most populist promise yet possibly swung the election for him. It also created a massive black hole in local government finances.

But that the Government of Silvio Berlusconi, a billionaire with a track record of serving himself, should back a budget for the rich shouldn’t surprise. But why did the opposition – normally scrutinizing at length government spending plans – give such a regressive budget its backing so quickly?

Pierluigi Bersani, leader of the Democrats, said it was a one-off “act of responsibility”, to reassure investors at a time when the sovereign debt crisis had moved from Europe’s periphery to Italy. The extra parliamentary left, trade unions and some church groups begged to differ. Still, kow-towing to speculators and pressure from Frankfurt, Brussels and Berlin, has become a habit of many social democrat parties these days, notably in Spain and Portugal.

But this isn’t just about today’s Euro crisis. The Italian left has form. It was the left, not the right, who slashed spending and privatised on an unprecedented scale to make way for entry into the Single Currency. Romano Prodi rose to prominence as a minister responsible for selling off state enterprises in the early 1990s. Then as Italian prime minister from May 1996 to October 1998, Prodi introduced the infamous Eurotax to meet stringent deficit limits.

As they gave Berlusconi’s budget the green light, Bersani’s Democrats also called time on his Government. If there were elections today polls suggest that they might even win it. Elections would be good as parliament has no mandate for the scale of cuts or fire sale of state assets it is planning.

Instead the Democrats want to do a deal with any one in parliament (bar Berlusconi) who is willing to form a caretaker ‘technocratic’ government until elections are due in 2013. A key aim – to further deregulate the economy with reforms they argue will boost growth but which will likely impoverish sections of the middle class up to now relatively untouched by the crisis, like the liberal professions.

Events across the eurozone shows that fiscal “responsibility” and a relentless drive to open up new areas of the economy to market forces are not only unpopular. They fail to deliver a sustainable economy or public finances.

Italy needs to ditch the failed policies of the past. It needs a new relationship with Europe that allows all in the the country to prosper. Until new political leadership emerges that understands this things are only going to go from bad to worse.

About revoltingeurope

Writer on Europe's Left, trade union and social movements @tomgilltweets or @revoltingeurope


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