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April 28, 2013 7:15 pm
Mario Monti and his technocrats were propelled into office 18 months ago by an external crisis on panicking debt markets. By contrast, Italy’s unprecedented “grand coalition” agreed by left, right and centrist parties at the weekend is confronted by the country’s internal economic collapse.
As if Italians needed any more proof of the bitter costs of austerity, news bulletins on Sunday were dominated not by the swearing in of the government after two months of political deadlock but by simultaneous mayhem outside the prime minister’s office. Luigi Preiti, 46, unemployed and apparently driven to desperation, opened fire with a pistol, wounding two policemen.
“He was a man full of problems who had lost his job, lost everything,” said the investigating magistrate, Pierfilippo Laviani, after questioning the gunman, who confessed that he had intended to shoot politicians.
Kick-starting the eurozone’s third-biggest economy after nearly two years of recession will be the priority for Enrico Letta, the centre-left prime minister who is to lay out his government’s economic programme to parliament on Monday.
Fabrizio Saccomanni, the Bank of Italy’s deputy governor chosen as finance minister, must navigate a narrow path between easing a crushing tax burden on consumers and businesses while meeting fiscal constraints imposed by Brussels, which Mr Letta has said Europe should re-examine.
Mr Saccomanni is one of four “technocrats” in the cabinet. His appointment was demanded by Giorgio Napolitano, head of state, and the power broker who compelled Italy’s politicians to form a government from the hung parliament. Mario Draghi, head of the European Central Bank and Mr Saccomanni’s former boss at the Bank of Italy, was also in favour.
With commentators speculating about how long this disparate government might survive, tensions surfaced on Sunday over a tax on homes imposed by Mr Monti’s unpopular technocrats. Silvio Berlusconi, the former prime minister and leader of the centre-right People of Liberty party, wants the tax abolished immediately and past payments reimbursed.
Renato Brunetta, the party’s economics spokesman, said he was confident that Mr Letta would commit himself to carrying out Mr Berlusconi’s electoral campaign promise. “If not, we will not give our vote of confidence in parliament,” Mr Brunetta told the Financial Times.
Mr Berlusconi is driven by the need to deliver results to a centre-right electorate aghast at the idea of sharing power with the left. But abolishing the levy would leave Mr Saccomanni looking for €8bn in lost revenues this year. Avoiding a programmed increase in value added tax in July – another Berlusconi demand – would cost another €2bn, while rising unemployment is driving up social welfare costs.
A government economist suggested that Mr Letta might seek a compromise by abolishing the tax only for more modest properties.
Italy’s plight was laid bare in a Bank of Italy report to parliament last week which said the economy was going through its most acute crisis since the second world war. Economic output last year was nearly 7 per cent below that of 2007, while disposable incomes had fallen 9.5 per cent.
Industrial production had collapsed by a quarter over five years, while the building sector shrank 22 per cent. Unemployment had nearly doubled, the central bank said.
Europeans are braced for a new age of austerity as governments across the region take action to eliminate unsustainable budget deficits
Mr Saccomanni was quoted by the daily La Repubblica newspaper on Sunday as saying he wanted to “restructure the state budget” to support companies and low earners. Public spending would be cut to allow tax reductions. Such confidence-building measures, he said, would lower Italy’s borrowing costs: short-term interest rates had already touched record lows last week.
The new minister, well respected on the international scene, also wants a “pact” between banks, business and consumers to boost lending, investments and consumption.
Such proposals are in line with the agenda that Mr Napolitano has already crafted through a group of “10 wise men” he set up in March to hammer out a common platform for a future government. Enrico Giovannini, head of the state statistics office and one of the 10, was given the post of labour minister to improve the muddled legislation devised by Mr Monti’s government under conflicting pressures from left and right.
Mr Napolitano’s agenda also includes measures to curb the powers of the trade unions in the private sector; stepping up the battle against tax evasion; and reforms to liberalise the energy, insurance, gas, pharmaceutical and postal sectors.
As noted by one senior official, who asked not to be named, the list makes no mention of abolishing Mr Monti’s property tax as demanded by Mr Berlusconi.
The centre-right knows it must deliver results to ward off the threat of an outright election victory by the anti-establishment Five Star Movement, which captured a quarter of votes in February and is now the main opposition party. Beppe Grillo, its comic-activist leader, dismissed the coalition as “an orgy worthy of bunga bunga”.
Asked how long this forced marriage might survive, Mr Brunetta replied: “If this government governs it can last a full term of five years. If not, then better elections.”
Italy’s government – the main appointments
Prime Minister: Enrico Letta, 46, Catholic and centre-left Democratic party moderate, PhD in European law, fluent in English and French
Deputy PM and interior minister: Angelino Alfano, close ally of Silvio Berlusconi and secretary of their centre-right People of Liberty, former justice minister
Foreign: Emma Bonino, former European commissioner, strong interest in Middle East and women’s rights
Finance: Fabrizio Saccomanni, former number two in Bank of Italy, oldest in cabinet at 70
Justice: Anna Maria Cancellieri, technocrat and former interior minister under Mario Monti
Economic Development: Flavio Zanonato, Democrat and ex-communist, former mayor of Padua
Defence: Mario Mauro, centrist Civic Choice, former vice-president of European parliament
Integration: Cecile Kyenge, Democrat, Italy’s first black minister
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