Italy lawmakers press to ratify reforms so Berlusconi can leave

Reporting from Rome —  Italy’s Parliament is pressing hard to ratify reforms clearing the way for Prime Minister Silvio Berlusconi to resign, but it will be left to his successor to solve structural problems decades in the making that are central to the debt crisis now dragging down the European — and the global — economies.

The nation’s $2.6-trillion public debt is the result of low productivity, corruption, suffocating bureaucracy and poor tax policies. Its economic performance between 2000 and 2010 was so bad, according to some estimates, that only Haiti and Zimbabwe fared worse in average annual growth.

This year, Italy’s economy is forecast to grow about 0.6%, compared with 2.8% for Germany, Europe’s economic powerhouse.

“That is the Italian problem — stalled growth,” said Vincenzo Vita, a senior member of Italy’s Senate.

On Friday, trying to mollify bond markets that have put severe pressure on Italy’s finances, the Senate voted overwhelmingly to approve reforms demanded by the European Union. The bill is expected to pass Parliament’s lower chamber, setting the stage for Berlusconi’s departure, possibly as early as Saturday.

While the in-your-face billionaire became a symbol of all that is wrong with Italy, getting rid of him doesn’t change the country’s economic situation. Berlusconi is expected to be replaced by Mario Monti, a former European commissioner who spearheaded the EU antitrust suit against Microsoft and is highly regarded on the continent.

Establishing a stable government in Rome is seen as a crucial step to restoring credibility among bond investors and European leaders. Investors turned their focus on Italy, the world’s eighth-largest economy, this week after the Greek government fell.

The economic struggles of the weakest members of the 17-nation Eurozone are roiling markets across Europe and beyond — Italy’s woes led to a major sell-off in global markets Wednesday.

But establishing a new Italian government is only the first step, said Mario Baldassarri, a member of the Senate who heads the Finance and Treasury Committee.

The bill in Parliament now is only a blueprint. The much tougher task, he said, will be for the government to develop specific reform measures — and then try to obtain a majority to pass the package.

Among the measures that the EU has called for are public spending cuts, pension reform, sale of state assets and greater flexibility in labor law. But changing some of these practices is likely to face significant opposition from entrenched interests and a public highly suspicious of Italy’s political system and EU demands.

On Friday, scores of protesters, most of them young people, demonstrated outside the Treasury Ministry building, hoisting banners demonizing the Italian president of the European Central Bank, Mario Draghi, as well as Monti, the presumed new prime minister.

Guelfo Carbone, a 28-year-old university graduate who has been unemployed for the last 18 months, said Monti will realize just how intrusive the EU reforms are.

Italy does have economic strengths. While its jobless rate for young workers like Carbone is about 30%, the overall rate, about 8%, stacks up well against those of neighbors such as Spain and Greece. Italy did not experience a big housing bubble, household debt is relatively low, and the savings rate fairly high. Its banks are traditionally conservative.

But wasteful public spending over the last two decades has sucked the dynamism out of the economy. Italy’s debt compared with the size of its economy is the second highest in Europe, after Greece. Corruption and stifling bureaucracy are pervasive problems.

Italy ranks 48th in the latest World Economic Forum global competitive rankings. The Heritage Foundation and Wall Street Journal’s Index of Economic Freedom, which covers things such as property rights and entrepreneurship, puts Italy at No. 87, one above Greece but below Fiji.

Even though the government is already supposed to be operating under an austerity budget, the Defense Ministry recently ordered five new Maseratis, said James Walston, a professor at the American University of Rome who has lived in Italy since the 1970s. A worker in Palermo, in Sicily, was reported to have received thousands of euros in overtime pay for shoveling snow — in August, he said.

“There are continuous things like that,” he said.

Italy’s underground business activity is estimated at 15% of the country’s economy, one of the largest percentages in Europe. That means many businesses and individuals don’t pay taxes. Meanwhile, industries complain that the tax burden falls on production of goods, not on real estate and assets, thus hurting the manufacturing capacity.

“To have a business in Italy is too expensive,” said Marcello Pigliacelli, 48, who runs a trucking company in Frosinone, about 60 miles southeast of Rome. One of his biggest complaints is the cost of labor and inflexible rules on hiring and firing. Taxes and contributions to other social funds double his cost for a worker, he says, adding that if regulations were eased, he would add two young workers for every one older employee who left.

Italy’s trade union leaders insist that it’s the workers who are suffering.

Employers who are struggling economically already can fire workers easily, they say, and unemployment benefits normally run for just eight months — although in the current tough economy, that has been extended to two years. Jobless benefits cover 80% of a worker’s last gross salary — compared with about 50% in the United States.

Marina Salamon, an entrepreneur whose companies include Altana, a fashionable children’s clothing maker in northern Italy where the economy is considerably stronger, says the country’s laws are often hard to fathom.

Her investments can be taxed at a much lower rate than businesses, she said

Then there are Italy’s employment rules. When Salamon served on Venice’s city council, she says, some people were videotaped stealing from the casino where they were employed, but the judges ordered the city to put them back to work.

“In Italy, we have continued a situation that reminds me of medieval or Renaissance times,” Salamon said. “Individual companies are sometimes brilliant. What doesn’t work is the state.”

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