It seems Berlusconi, Bush's rightie bud, pretty much killed off Italy's economy........and Italy has a ballooning deficit too! What a surprise.......NOT!
Unruly coalition complicates Prodi's plans
By COLLEEN BARRY
ASSOCIATED PRESS WRITER
MILAN, Italy -- Italy has been diagnosed as the sick man of Europe, with zero growth and a ballooning deficit.
Now, picture Italy as a patient, bundled inside warm blankets, shivering in Romano Prodi's waiting room after his center-left coalition's slim election victory. Inside, Prodi's unruly team is already bickering about which of the many maladies to treat first - and how.
Prodi has declared getting public finances under control a priority. But already a communist party - taking a cue from Italy's top union - is creating distractions, saying it wants to repeal a law passed by the center-right government of Silvio Berlusconi introducing more workplace flexibility.
Public spats like this one making Italian newspaper headlines on Friday illustrate the difficulties Prodi, with a parliamentary majority of just a few seats, will face trying to treat Italy's most serious economic ailments.
"The biggest problems are public debt and the competitiveness of Italian goods," said James Walston, a political science professor at the American University in Rome. "But in order to deal with those, he has to overcome the fear of being fired. If he is lucky, and if he is clever, he will be able to do something."
A long list of woes hampers the euro zone's third-largest economy.
Growth plummeted to zero in 2005, dragging European growth down to 1.3 percent with the worst performance among the 12 countries using the euro. Public debt rose last year for the first time since 1994, to 106.2 percent of gross domestic product.
Italy's traditional textile and shoe industries are struggling against the onslaught of Asian competition. Youth unemployment is among the highest in Europe. An unwieldy bureaucracy discourages foreign investment that could give Italy a boost. And since the introduction of the euro, Italy no longer has the tool of currency devaluation to help regulate the economy.
Italy is under orders by the European Commission, once led by Prodi, to cut its debt and resolve what it called "deep-rooted structural problems." And it has pledged to bring its budget deficit below 3 percent of GDP by 2007, in line with the European Union's Stability and Growth Pact that underpins the euro.
Economists say that achieving that will require tax hikes - something Prodi pledged he won't do - or credible privatization plans - which left-wing elements in his coalition would likely oppose.
One of the biggest problems in fixing Italy's ailing economy is a lack of clarity on the severity of its weakness, with estimates for the budget deficit ranging from 4 percent of GDP to above 5 percent, said Franco Bruni, an economics professor at Milan's Bocconi University.
"We have to clean this up and get a checkup by an independent agency," Bruni said.
According to Bruni's prescription, the new Italian government must reduce the cost of labor, liberalize the economy, reduce bureaucracy and increase the quality of public services.
In very concrete terms, Bruni said businesses need to be able to rely on having a phone line installed promptly, on mail being delivered in a timely fashion, on trains running punctually, on feeling protected from criminal elements.
"These are factors that all improve productivity," Bruni said.
They also are factors that help determine the level of foreign investment, said Paulo Ceresa of the American Chamber of Commerce in Milan.
The United States is the largest foreign investor in Italy, with a net investment of $22.5 billion in 2004, the most recent data available, up from $19.5 billion a year earlier, according to the American Chamber of Commerce.
While U.S. investment comprises nearly a quarter of all foreign investment in Italy, the level lags behind that of American firms in France and Germany, Ceresa said, largely because investors are discouraged by Italy's business climate.
Ceresa said foreign investment was boosted by the law allowing greater workplace flexibility, for example by creating new categories of workers that could more easily be laid off.
But the most important factor determining future investment will be having a stable government.
Investment could suffer, "if investors don't think the government will last the entire legislative period," Ceresa said.
In order to survive, analysts agreed that Prodi must rein in his partners - calling on the good will of industry and unions and using the threat of Berlusconi's return if the left can't govern effectively. Only then can Prodi devise an effective treatment.
"Making reforms is easy on the pages of a newspaper, but it is not so easy to do in the parliament," Bruni said.
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