Wednesday, April 09,

Italian Elections This Weekend: Berlusconi and Veltroni: Reluctant Winners ???

The ANNOTICO Report

 

The problems seem so numerous, (an incomplete list includes outdated infrastructure, a weak education system and underqualified workforce, an ageing population, a fragmented political system, inefficient state bureaucracy, organised crime, a low employment rate, a slow legal system, huge public debt, low wages and low productivity), and a fragmented political system, which is a recipe for policy inertia, and prevents them from being tackled.

 

The strong and sometimes coddled Unions, the bloated and inefficient Bureaucracy, and a predominance of small firms that produce quality products, but unable to invest in high technology to gain more productivity.

 

"To take on unpopular reforms you need to know you have time, that you won't be called to task for four or five years, but Italian governments are seldom in that position and the next one is unlikely to be either"

 

"Often they just have time to make an unpopular announcement and are then bogged down in negotiations with small coalition partners, then the electorate gets frustrated and the government falls before the reform is ever passed."

 

With a failing economy and a disenchanted, skeptical electorate it is understandable that neither Berlusconi nor Veltroni seem to be campaigning with much relish, and neither side is all that desperate to win.

But take heart.  While Italy seems drifting, the US seems headed over a precipice. With the US  2001 Stock Bust and the 2007 Mortgage Bust, the Incredibly Stupid and Costly Invasion of Iraq, the  Shipping of US Jobs Overseas, the Massive Invasion of Illegals and Importation of Drugs over our Mexican Border, the number of US Homeless, those without Healthcare, it almost seems like on borrowed time. Further, of the outstanding 2.5 Trillion in US Treasurys (Just one of our many US Debt Instruments)  Half  are held by Japan, China, and OPEC. !!!!!!

 

The sale of any one of their portfolios could send the US into a tailspin!!!!!!!!!!!  

Dire Economy Means Bleak Prize for Next Italy Govt

Guardian - UK

From Reuters

By Gavin Jones

Wednesday April 9, 2008

 

ROME- Italy's chronically weak economy is in such dire straits that an April 13-14 parliamentary election could well be a good one to lose.

Italy's electoral system is a recipe for another weak, unstable government -- and, with the economy set to deteriorate further, it can be expected to lose popularity just as fast as all its recent predecessors.

 

"It's going to be nasty for whoever wins the election because the outlook is gloomy and the problems in Italy are so entrenched that nothing can be done in the short term," Bank of America analyst Gilles Moec told Reuters.

 

In these circumstances, a probably brief spell in opposition may be a blessing in disguise for the loser of the vote pitting conservative media tycoon Silvio Berlusconi against former Rome mayor Walter Veltroni, who leads the centre-left.

 

By the time the next ballot comes around the worst of the global downturn may be over. More importantly, the backlash from disaffected Italians may have finally persuaded politicians to change the voting system to permit stable, cohesive government.

 

While most of the euro zone is showing some resilience in the face of a surging currency and record high oil prices, Italy is close to recession, worsening a trend which has seen it underperform its main partners for at least a decade.

 

Romano Prodi's outgoing government last month slashed its growth forecast for this year to 0.6 percent from 1.5 percent, and the International Monetary Fund sees Italy growing at just half that rate.

 

The outlook makes a mockery of the familar election promises of tax cuts and handouts made by both Berlusconi and Veltroni.

"The budget deficit is already set to rise this year so there will be hardly any room for manoeuvre after the election," said Tito Boeri, economics professor at Milan's Bocconi University. "Everyone knows the promises are empty ones."

 

The situation would not be so serious if Italy were just following its trading partners through a normal cyclical downturn, but the problems of the euro zone's third largest economy run far deeper.

 

An incomplete list includes outdated infrastructure, a weak education system and underqualified workforce, an ageing population, a fragmented political system, inefficient state bureaucracy, organised crime, a low employment rate, a slow legal system, huge public debt, low wages and low productivity.

 

Many of these are interlinked, but analysts say low labour productivity and the public debt are probably the most crippling for the economy. And the political system, a recipe for policy inertia, prevents them from being tackled.

 

LABOUR REFORMS

 

There are many reasons Italians have failed to increase output per hour worked like their competitors, including a rigid labour market and a predominance of small firms unable to invest in high technology.

 

"To boost productivity we have to change job protection rules and centralised wage negotiations," said Boeri. "These are a disincentive for companies to hire, expand and invest."

 

Firms must pay the same rates in the south of the country, where living costs are much lower, as in the rich north, and they are loath to hire permanent workers because they cannot fire them in a downturn, analysts say.

 

Italy's public debt, the third largest in the world, is an inheritance from the free-spending governments of the 1980s.

It amounts to more than the gross domestic product and forces the country to pay some 70 billion euros ($110.1 billion) per year in interest, drastically reducing the scope for expansionary policies like tax cuts or public investment.

 

STRONG GOVERNMENT, PLEASE

 

In these conditions, the country desperately needs a strong, decisive government to curb unproductive public spending, cut the debt and pass overdue but unpopular reforms.

 

But voting rules that have spawned dozens of tiny yet influential parties and a constitution giving parliament power at the expense of the prime minister mean that is just the sort of administration most Italians have never known.

And they are unlikely to see it after this vote either.

 

The electoral law introduced by Berlusconi ahead of the 2006 vote was, in the view of most observers, designed to ensure a small, unstable majority after the election he was set to lose.

 

This is what happened and at this ballot Italy is saddled with the same hybrid law based on proportional representation, making another small, unworkable majority like the one that scuppered Prodi a very real possibility.

 

"To take on unpopular reforms you need to know you have time, that you won't be called to task for four or five years, but Italian governments are seldom in that position and the next one is unlikely to be either," said Bank of America's Moec.

 

"Often they just have time to make an unpopular announcement and are then bogged down in negotiations with small coalition partners, then the electorate gets frustrated and the government falls before the reform is ever passed."

 

With a failing economy and a disenchanted, sceptical electorate it is understandable that neither Berlusconi nor Veltroni seem to be campaigning with much relish.

 

Perhaps the real reason the election race has been so dull is that neither side is all that desperate to win.

 

 

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