Business, Finance & Economics

Italy: Austerity, Berlusconi-style


Italian Prime Minister Silvio Berlusconi prior to a European Council meeting on Oct. 23, 2011. The euro zone is aiming to nail down a solution to the worst economic crisis in its history, as the spotlight falls on Italy amid contagion fears. (Eric Feferberg/AFP/Getty Image)



ROME, Italy — Italian Prime Minister Silvio Berlusconi is under serious pressure, and today he will have to answer for his government.

Never mind the tangle of investigations over cronyism and bunga bunga parties. This time, the heat comes from Europe’s leading duo — German Chancellor Angela Merkel and French President Nicolas Sarkozy. They matter to Berlusconi and Italy because their support could be critical to keeping debt-swamped Italy solvent.

At a press conference last the weekend, Merkel and Sarkozy gave Berlusconi a public dressing-down for his failure to promote growth and address Italy’s debt, which has soared to 1.9 trillion euros. That’s 120 percent of Italy’s gross domestic product, or twice Europe’s legal limit.

The duo has demanded that Berlusconi present a new economic plan by Wednesday, Oct. 26. In response, Berlusconi has lashed out at this infringement on Italian sovereignty.

But he has also snapped to attention, rushing to come up with a plan. The problem: According to Italian press reports, the Berlusconi plan may deeply disappoint.

The plan hasn’t been made public yet. On Wednesday morning, Italian news agency Ansa reported that some progress has been made toward a key reform: raising Italy’s public sector retirement age from 65 to 67, although a loophole promises to diminish the effect of that change.

Other ideas floated are far less promising — and in some cases, borderline ridiculous. They reportedly include a mix of one-time and ad-hoc measures aimed at bringing some money to Italy’s coffers — or, in one case, to put the screws on Berlusconi’s estranged second wife and their children.

Before we list these measures, allow us to stress that Berlusconi’s economic plan is no small matter for Italy, Europe or the world.

What’s at stake here is the survival of the euro itself: were Italy to fall into a Greek-style crisis, the euro zone’s third largest economy might prove too big to save, especially with economic powerhouses Germany and France already reeling under the weight of the bailout. An Italian "credit event" would have cataclysmic consequences on the continent’s banks.

This week, the pressure has brought Berlusconi’s government to the brink of collapse. But the media tycoon-turned-politician appears to have survived once again. After frenzied meetings that went well into the night, a tentative agreement has been reached.

Berlusconi is handing his European partners a 15-page “letter of intent” spelling out his government’s next steps. While, he is famous for making boastful promises that often fail to bear results, here's an idea of what the letter might include:

  • TV license amnesty: Italians pay a 110 euro license fee to support the country’s public broadcaster, Rai TV. Or at least they are supposed to. Tax evasion is widespread and many people haven’t been paying the license for years. The government might offer fee evaders the occasion to settle their position by paying just half of their due, while providing an amnesty for the fines they might have incurred.
  • Political billboard amnesty: In Italy, the saying “everything is political” is clearly confirmed by looking at the country’s walls and streets. Local politicians try to show that they are doing their job by advertising their achievements on billboards all over the cities. Often rival politicians race to cover their opponent’s posters with their own. Most of the time, this is done without authorization, and politicians incur fines that are seldom paid. Now, the government might offer wall-befouling politicians the chance to set their record straight, by paying 750 euros per year, bringing a trickle of money to public coffers. 
  • Kindergarten tax: This measure would enable pay concessions if an employer agrees to open a kindergarten in the work place or to build a disabled-friendly access to the office.
  • Online school reports: Traditional paper school reports, often doctored by students who want to hide their bad marks, would be abandoned in favor of online progress reports. This should prevent fraud, and save a few million euros, says the government.
  • University professors' pension age: While a major reform initiative is to get people to stay working longer and reduce the burden on Italy’s teetering pension system, the opposite is true for professors. They now officially retire at 70 but often try to hang on to their posts even longer. The government wants to have them move from academia to gardening two years earlier, at 68, to make place for younger scholars.
  • Shrinking offices: Presumably to save on rent, the size of government offices would shrink by 10 percent every year starting in 2012. No one has projected when this would get dangerously close to eliminating Italian government office space, but considering the bloated size of Italy’s public administration, this shouldn’t be happening anytime soon.
  • And finally, a new inheritance law: It is unclear how this is supposed to help growth. But critics say this is the latest “ad personam” law tailored to Berlusconi’s interests. It will allow him to favor the offspring of his first marriage over the sons and daughters he had from his estranged second wife. The latter have not always refrained from criticizing him. This provision would enable him to bequeath most of his media empire to his older son and daughter, Piersilvio and Marina, who are fiercely loyal to him.