Silvio Berlusconi’s coalition Government could today approve sweeping austerity measures demanded by the European Central Bank in return for it helping to finance its debt mountain.
A mixture of heavy spending cuts and tax rises, they will depress an already depressed internal market at a time when austerity elsewhere means export markets are struggling too.
What’s more, working people will once again paying the price. Cuts to pensions, health services, tax relief for less well off households, privatization of local public services and the ‘liberalization’ of labour laws are planned.
Looking at the riots in the UK, Susanna Camusso, leader of CGIL, the largest trade union federation, yesterday said they originate in “social inequality produced by liberalist policies”. If Berlusconi’s coalition further damaged the lower and middle classes without touching the wealthy, rising social tensions were “inevitable” in Italy too, she said. And, so was a general strike.
Concerns about unrest may be behind Tremonti’s suggestion that a “solidarity contribution” will be demand of those on higher incomes – 5% on Euros 90,000 plus and 10% on Euros 150,000 plus. An increase in capital gains tax – ie the tax on sales of property, shares or businesses – from 12.5 per cent to 20 per cent is also on the cards. Neither of these proposals have been confirmed though.
It also appears that there will also be a “balanced budget law”, a victory for the fiscal conservatives in Frankfurtand Berlin who are calling the shots in this never ending Euro crisis. A constitution once centred on work, or lavoro, s now going to be anchored around the economics of corner shop.
Times have never been more difficult for the Italian Government and premier Silvio Berlusconi who less than a week after passing one austerity budget found himself forced into imposing another that brings make the cuts faster and deeper.
The exact demands made in a letter sent to premier Silvio Berlusconi last Friday from Jean-Claude Trichet and his successor at the head of the European Central Bank, Mario Draghi, currently governor of the Bank of Italy, have not been revealed.
But the letter prompted Berlusconi to pledge to balance Italy’s budget by 2013, a year ahead of schedule. In return ECB will purchase Italian bonds which investors had been shunning and which had sent the interest Italy has to pay on its debt to unsustainable levels.
It is difficult to find anybody who knows anything about economics (excluding central bankers) who think the plan is going to work. The Italian economy has barely expanded over the last decade, thanks in large part to the straight jacket of monetary union that meant it coudn’t devalue it currency to export its way back to growth. These measures will send the economy into reverse.
Is any of this necessary? Italy’s national public debt has stood at around 120% ofGDPfor years. Many Italians question why it should now be such a big problem. After all it’s the other countries in Europe who have seen the big increases in debt.
But let’s assume Italy does need to bring the debt down.
Europe’s third largest economy has a debt of about Euros 1.9 trillion. That sounds an awful lot. But with an estimated annual sum of Euros 120-150 billion lost to the public finances in tax evasion it wouldn’t take long to knock it down to size if a concerted effort was made to tackle it.
This would require a crack down on practices of both the big and small businesses, and self-employed. Today it is employees, as they get their taxes deducted as source, who bear the burden of taxes. (The figures tell the story – employees account for 88% of contributers and pay 93% of income tax receipts but it is quite impossible that there are so few self employed and that they earn so little.)
Tackling the black economy will also mean a more determined battle against the Napolitan Camorra, the Sicily’s Cosa Nostra, Puglia’s Sacra Corona Unita and above all Calabria’s ‘Ndrangheta, by far the largest and most successful today. Together Italy’s mafias they have an estimated turnover of 135 billion and make 70 billion in profits.
And profits are getting bigger – adding to the big ticket items like drugs, prostitution and people smuggling, the more traditional money lending side of the business has been booming since credit from legitimate banking operations has dried up. Today 200,000 ‘customers’ make them a tidy Euros 20 billion a year.
The justice system is currently doing a pretty good job on organised crime. But when you have a government including ministers (like Francesco Saverio Romano, Agriculture Minister) who are facing mafia-related charges, a real political commitment against the mafia may seem unlikely.
And here we get to the crux of the matter. For ending this robbery of the Italian state – in total the black economy is a colossal 275 billion, or 17.5% of GDP, according to official figures – will require a good example from the top.
It has long been the case in Italy that the small time dodger has looked at the big timers with their slick accountants and political friends, and asked: why pick on little me? In recent years they feel more aggrieved than ever.
Silvio, the billionaire who has resided in the prime minister’s office in Rome for a total of nine years since 1994, is currently on trial for tax fraud.
Prosecutors accuse him of being a secret partner in slush funds with money allegedly paid by his Mediaset broadcasting empire in the acquisition of television and film rights. He denies it of course. And like the rest of his legal battles, no-one believes they will see him end up in jail.
But with a reputation like that is it any wonder many ordinary Italians feel no shame is dodging the tax collector?
Today the cuts package may well be passed. And if so, Italy, and as a result the whole of Europe, will go from bad to worse. But let no-one say there’s no alternative.