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Italian report Italian report
by Euro Reporter
2011-12-02 07:13:15
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Italian unions uneasy over economic rescue plan

The Italian government's financial rescue plan is yet to be finalized, but already labour unions are denouncing it and some politicians are suggesting they might not back all the anticipated harsh measures meant to save the country from bankruptcy. Unions seem particularly galled that Premier Mario Monti, in his rush to reassure markets about Italy's ability to rein in its debt and spur growth, is doing away with the government's traditional negotiations with them over any change to labour regulations or pensions. Monti told reporters Wednesday in Brussels that time constraints and the "extraordinary delicate situation" Italy is struggling through doesn't allow for "certain rituals that might be welcome by everyone, but perhaps aren't advantageous to the country."

In the past, such negotiations with unions have frequently blocked major overhauls of Italy's generous pension system. Monti promised that his Cabinet on Monday would approve a package of spending cuts to slash towering debt and structural reforms to spur growth. He called for a "collective sense of urgency and responsibility" among lawmakers to facilitate passage in Parliament. The new premier is under tremendous pressure to rein in Italy's euro1.9 trillion ($2.6 trillion) in debt load — 20 percent larger than its annual economic output. The country, which is the euro zone’s third-largest economy, is considered to be too big to be bailed out. An Italian default would be disastrous for the 17-member eurozone and reverberate throughout the global economy. Susanna Camusso, head of Italy's largest labour confederation, the left-leaning Cgil, has demanded a meeting with the government before the Cabinet clears the new measures.

News reports suggest Monti's plan includes a proposal to add at least one year to the 40 years now required in social security tax contributions before a worker is entitled to retire. "The government must know that 40 is the magic, untouchable number," Camusso said. The centre-left Democratic Party is also sceptical about what might be proposed, arguing that flexibility must be built into the system to account for different types of labour and the age at which someone started working. "Such a drastic intervention on this front seems like an error," said Democratic lawmaker Paolo Baretta in an interview with Rome daily Il Messaggero.

The leader of the centre-left Democratic Party, however, said the party's main concern is that the burden of sacrifice be shared equally. "He who has more must give more," said Pierluigi Bersani. Monti has said as much in describing the three pillars of his reform: budgetary rigor, economic growth, and social fairness. Silvio Berlusconi, who was forced to resign as premier because markets lost confidence in his ability to push through reforms, huddled with his allies into the early hours of Thursday to map strategy. His conservative allies fear a rumoured special tax on wealth and the return of a home property tax. "We're ready to do our part to support Monti's government to get out of the crisis," said Maria Stella Gelmini, Berlusconi's former education minister and a member of his People of Freedom Party. But she said the party had told Monti they were "perplexed" about the proposed taxes.


IMF unable to save Italy

Italian bond yields continue to climb to new euro-era records, with bonds sold within the past two days going at 7.89 per cent — a level at which Greece, Ireland and Portugal were all forced to seek bailouts. Italy has a stronger financial position and more domestic capital than the euro zone’s three bailout states, but there is still an upper limit to what Rome can afford and the markets are pushing Italy ever closer to a break point. In this environment the Europeans are searching for a means of containing Italy’s troubles. The threat is clear. An Italian default would rip apart the euro zone even if it did not trigger a financial cascade — and a financial cascade would pretty much be a given. One of the solutions that are supposedly being crafted involves bringing in the IMF to bail out Italy. On the surface this does make some sense. The IMF was created to assist struggling economies with bridge funding, but while there may be a role for the IMF to play, it simply cannot take point on the Italian question.

The IMF normally operates by a tranche-and-reform model. The bailout money is provided in chunks, and each chunk is given only after specific defined and monitored reforms are implemented. This grants the IMF leverage over the state in question to ensure that the agreed-upon reforms are not only crafted, but implemented and stuck with for the duration. Otherwise the ward is cut off, as Belarus has recently been. Italy’s problem is more than just simply needing cash. Italy isn’t just facing an immediate funding crunch like most IMF wards. It has a pre-existing debt stock that’s about 120 per cent of GDP — it’s unserviceable, and Italy faces billions in maturing debt that must be refinanced on a monthly, and sometimes even a weekly, basis — 300 billion in refinancing needs in the first half of 2012 alone.

Were the Fund to become involved, it would have to intervene regularly in the bond markets to keep Italian yields down. Such proactive activity is not only not within the existing skill sets of IMF staff, it would deny the Fund the leverage over Rome that it needs to make the reforms stick. But most importantly, the IMF simply does not have the resources to bail out Italy, much less the euro zone as a whole. The IMF’s entire financial reserves are slightly under $400 billion (about euro 300 billion). Any credible remediation program for Italy would need to be in the range of euro 800 billion, and that’s before taking into account the costs of recapitalising Italy’s banks. Expanding the IMF’s reserves is possible, but it first requires buy-in of every major country (and several not so major countries) in the world. To this point that’s always required multiple years of ratification processes. Europe doesn’t have that kind of time. So while the IMF certainly has a role to play, just as it does with the Greek, Irish and Portuguese bailouts, it probably cannot shoulder more than a few dozen billion euro. Europe is simply going to have to find another source of money.


Italy, Greece among Worst Euro countries in corruption ranking

Italy and Greece scored the lowest among euro-area countries in a global corruption ranking as their inability to tackle graft and tax evasion exacerbated the debt crisis, watchdog group Transparency International said. Italy came in 69th and Greece placed 80th, down from 67th and 78th respectively in the 2010 ranking, the Berlin-based group's Corruption Perceptions Index showed today. Ireland dropped five places to 19th, earning a score of 7.5 out of 10, a drop from 8 points in last year's ranking, Transparency said.

"Euro-zone countries suffering debt crises, partly because of public authorities' failure to tackle the bribery and tax evasion that are key drivers of debt crisis, are among the lowest-scoring EU countries," the group said in the report. Europe's engulfment in the sovereign-debt crisis has exposed the failure of indebted governments to raise revenue and tackle reforms, prompting crowds of protesters to fill the streets to demand their ouster. Italy's Silvio Berlusconi resigned as prime minister last month, two days after his Greek counterpart, George Papandreou, was forced out.

New Zealand maintained its top position in the ranking, alongside Denmark and Finland. North Korea debuted on the list with a score of 1, ranking last with Somalia, a rung lower than Afghanistan and Myanmar, according to Transparency. The U.S. dropped two spots to 24, though the world's biggest economy retained its 7.1 score. The index, which measures the perception of corruption in the public sector, showed that two-thirds of the 183 nations reviewed scored below five on a 0-to-10 scale, with 10 indicating the least corrupt, Transparency said.

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