Italy

Politics:

• Analysis

  Italy politics: The Ohio of Italy

  Italy's election: The Ohio of Italy

  Silvio Berlusconi's electoral fate will be decided in his native Lombardy

  AMONG the souvenirs in Gabriele Albertini's office is an old typewriter that belonged to Indro Montanelli, a conservative editor whose clash with (and split from) his proprietor, Silvio Berlusconi, is a journalistic legend in Italy. Mr Albertini, a former mayor of Milan who was elected to the European Parliament for Mr Berlusconi's People of Freedom (PdL), has followed him by running for governor of Lombardy without a PdL endorsement.

  Where Mr Albertini has ventured, others are going too. Mr Berlusconi's decision to stand for prime minister in the general election that will probably coincide with the vote in Lombardy on February 17th is shattering the Italian right. This week another senior figure, Ignazio La Russa, launched a new group for refugees from the PdL's former neo-fascist wing.

  In Lombardy the European dimension of Italy's election is especially stark. "The Italian people must decide if they are in Europe or not," says Mr Albertini, who wants the technocratic incumbent, Mario Monti, to stay as prime minister. Mr Albertini is campaigning against Mr Berlusconi's swerve into populism and his plans to reforge an alliance with the anti-European Northern League. The League's de facto leader, Roberto Maroni, also wants to be governor, and the PdL has not so far put up a candidate to challenge him.

  Mr Berlusconi's hopes of influence in the next Italian parliament rest on winning seats in the Senate, the upper house. For that he needs the League. Almost a quarter of the seats in the Senate are for constituencies in Lombardy and the League's other heartland, Veneto (see chart). The programme he offers--abolition of an unpopular property tax, depiction of the rise in Italy's borrowing costs as a "trick" or "plot", confrontation with an "egoistical" Germany--chimes with the ideas of traditionally xenophobic League voters.

  But it is fraught with danger for business in Lombardy, Italy's economic powerhouse, with an economy the size of Austria's, producing over a fifth of Italy's GDP. Many firms depend on orders from north of the Alps. That point has not been lost on Mr Maroni, who, in effect, took over leadership of the League from its founder, Umberto Bossi, after a financial scandal in April. Alessandro Da Rold, author of a new book on the League, says Mr Maroni's aims include extricating the party from Europe of Freedom and Democracy, a Europhobic group in the European Parliament, and nudging it to be less hostile to Europe, though still critical of free markets.

  Above all, Mr Maroni wants "a League in a collar and tie", says Mr Da Rold. But having purged his party of scandal-tainted officials, he faces being forced into an alliance with Mr Berlusconi, who is appealing against a conviction for tax fraud and is also charged with paying for sex with a 17-year-old. Just as Mr Berlusconi needs the League at national level, Mr Maroni needs what is left of the PdL to become governor of Lombardy. He and his party are between a rock and a hard place. Senior League officials met in Milan on December 17th to discuss their strategy, but the meeting broke up without a decision.

  

  December 22, 2012

• Background

  Italy: Political forces at a glance

  Political outlook: Political forces at a glance

  Present government: The government of technocrats with no political affiliation formed by Mario Monti in November 2011 is supported in parliament by parties on the right, left and centre. The main parties are the centre-right Popolo della Liberta (PDL) led by Silvio Berlusconi, Mr Monti's predecessor, and several parties that were in opposition until the Monti government was formed, including the centre-left Partito Democratico (PD) and the parties in a smaller centrist alliance known as the Terzo Polo (Third Pole). The Lega Nord, which was part of the Berlusconi government, is now in opposition.

  Local elections; first round May 6th-7th
  	General election	Local elections
  	2008	2012
  Popolo della Liberta (PDL)	37.6	11.6
  Total centre righta	39.9	25.7
  Partito Democratico (PD)	33.9	16.4
  Italia dei Valori (IDV)	5.2	4.6
  Sinistra Ecologia Liberta (SEL)	-	2.6
  Verdi	3.3	2.2
  Total centre-lefta	43.1	37.7
  Unione di Centro (UDC)	5.7	5.0
  Other centrists	2.0	11.5
  Total centrist bloc	7.7	16.5
  Lega Norda	6.4	2.7
  Movimento 5 Stelle	0.0	7.1
  Others	2.9	6.5
  Total	100.0	100.0
  a Including civic lists supported at least one of the parties in the bloc.

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  Next elections: The next parliamentary election is due in April 2013. By May 2013 an electoral college of the Senate (the upper house), the Chamber of Deputies (the lower house) and regional representatives is due to elect the president. Besides the mayoral election in Rome due in April 2013, elections are not due in any major city until 2016. Elections in 15 of Italy's 20 regions are due in early 2015.

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  July 24, 2012

• Structure

  Italy: Political structure

  Official name

  Italian Republic

  Legal system

  Based on constitution of 1948

  National legislature

  Bicameral: Senate of 315 seats; Chamber of Deputies of 630 seats

  National elections

  April 13th-14th 2008; next election due in April 2013

  Head of state

  The president, elected for a seven-year term by an electoral college of the Senate, the Chamber of Deputies and regional representatives, has no executive powers. Elected in May 2006, the term of the current president, Giorgio Napolitano, runs until mid-May 2013

  National government

  Council of Ministers headed by a prime minister, appointed by the president on the basis of ability to form a government with parliamentary support. The current "technical" government, which has no professional politicians with party allegiance and is led by Mario Monti, was sworn in on November 16th 2011 and subsequently received strong votes of confidence in the two houses of parliament

  Political coalitions and parties

  The main parties represented in parliament are: the centre-right Popolo della Libertà (PDL), a merger of the former Forza Italia (FI), Alleanza Nazionale (AN), Democrazia Cristiana per le Autonomie (DCA) and several other micro parties. In 2010 a group of PDL deputies formed a new centrist party, Futuro e Libertà per l'Italia (FLI). This has a loose alliance with the Unione di Centro (UDC) and the Alleanza per l'Italia (API). Centre-left parties are the Partito Democratico (PD), Italia dei Valori (IDV) and the Radicali. There are two significant regional parties: the Lega Nord in the north and the smaller Movimento per le Autonomie (MPA) in the south

  Cabinet ministers

  Prime minister: Mario Monti

  Secretary to the cabinet: Antonio Catricala

  Ministers with portfolio

  Agriculture: Mario Catania

  Culture & heritage: Lorenzo Ornaghi

  Defence: Giampaolo Di Paola

  Economic development, infrastructure & transport: Corrado Passera

  Economy & finance: Vittorio Grilli

  Education, universities & research: Francesco Profumo

  Employment & social affairs: Elsa Fornero

  Environment: Scorrado Clini

  Foreign affairs: Giuliomaria Terzi di Sant'Agata

  Health: Frenato Balduzzi

  Interior: Anna Maria Cancellieri

  Justice: Paola Severino Di Benedetto

  Ministers without portfolio

  Europe: Enzo Moavero Milanesi

  International co-operation & integration: Andrea Riccardi

  Parliamentary relations: Piero Giarda

  Territorial cohesion: Fabrizio Barca

  Tourism & sport: Piero Gnudi

  Central bank governor

  Ignazio Visco

  November 01, 2012

• Outlook

  Italy: Key developments

  Outlook for 2013-17

  • The Economist Intelligence Unit forecasts that the government, led by Mario Monti, will retain cross-party parliamentary support until the next election, in April 2013, but the risk of another government crisis before then remains high.
  • Italy's standing in the EU has improved considerably under Mr Monti, but we expect this to be short-lived, given the likelihood of a return to fractious coalition politics after the next general election.
  • Political uncertainty combined with Italy's structural, economic and financial weaknesses will continue to pose a threat to the survival of the euro zone.
  • The government has a wide-ranging programme to stimulate medium-term growth and competition, but resistance to change has been strong and there is limited time left before the election to implement measures.
  • We expect the fiscal deficit to shrink substantially, but owing to the effect of the recession on revenue, the budget will remain in deficit during 2012-17.
  • The public finances will continue to be highly vulnerable to shifts in investor sentiment. Rolling over public debt of just over 120% GDP is likely to require indirect support from external actors, notably the European Central Bank (ECB).
  • Real GDP is forecast to decline by 2.4% in 2012 and 0.8% in 2013, and to grow by about 1% a year in 2014-17. Private consumption will contract in both 2012 and 2013. There are substantial downside risks to the growth outlook.

  Review

  • The former prime minister, Silvio Berlusconi, threatened to withdraw his party's support for the government after he was found guilty in the first instance of tax fraud on October 26th.
  • Since Mr Monti declared in late September that he would consider a second term as prime minister, if needed, members of a centrist grouping have been exploring the possibility of forming an alliance to support him.
  • The parties backing Mr Monti in parliament have requested substantial changes to the draft 2013-15 Stability Law, which contains a total net fiscal correction of EUR11.6bn (US$14.6bn) over three years and a modest income-tax cut.
  • Industrial output increased by 1.7% month on month in August, but still remained at historically depressed levels.
  • The seasonally adjusted unemployment rate was 10.7% in August, unchanged from the previous two months.
  • Italy recorded a foreign trade deficit of EUR598m in August, compared with a deficit of EUR2.9bn a year earlier. Adjusted for seasonal factors, the trade balance showed a sixth consecutive monthly surplus, of EUR587m.

  November 01, 2012

Economy:

• Background

  Italy: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	60.8	Population growth	0.6
  GDP (US$ bn; market exchange rate)	2,200b	Real GDP growth	-0.6
  GDP (US$ bn; purchasing power parity)	1,964b	Real domestic demand growth	-0.6
  GDP per head (US$; market exchange rate)	36,191	Inflation	2.2
  GDP per head (US$; purchasing power parity)	32,307	Current-account balance (% of GDP)	-2.8
  Exchange rate (av) €:US$	0.719b	FDI inflows (% of GDP)	0.8
  a Economist Intelligence Unit estimates. b Actual.

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  Background: Post-war Italy has been characterised by a weak political structure and a relatively strong, but recently declining, economic base. Between 1996 and 2011 Italy had a bipolar political system, dominated by a right-of-centre alliance led by Silvio Berlusconi and a broad left-of-centre coalition. Since early 2011, a third centrist alliance has emerged. A loss of investor confidence in Italy's ability to finance its debt led to defections from Mr Berlusconi's majority, leading to the formation in November 2011 a government of "technocrats" belonging to no party, led by Mario Monti as prime minister.

  Political structure: Parliament is elected for a maximum of five years. The president, who is elected by parliament for a seven-year term, decides, in the event of a political crisis, whether to call an election or to nominate a prime minister to try to form a government. He also promulgates laws and may return a law to parliament for reconsideration, but he has no power of veto. Executive power lies with the cabinet, which is nominated by the prime minister and approved by parliament. The prime minister cannot dismiss ministers without forming a new government. The current proportional voting system awards bonus seats to the winning coalition on a regional basis in the Senate (the upper house) and on a national basis in the Chamber of Deputies (the lower house). A reform may be introduced before the 2013 general election.

  Policy issues: Key issues are the management of, and attempts to reduce, Italy's large public debt (120% of GDP), safeguarding the banking system and keeping Italy in the euro zone. There is a serious risk of default, a banking crisis and enforced departure from the euro zone. The current government has put forward structural economic reform plans to boost long-term economic growth, given a poor record relative to comparable economies over the last 15 years.

  Taxation: The top rate of personal income tax is 43% and social security contributions are high, especially for employers. The corporation tax rate is 27.5%, but additional regional and municipal taxes are levied, including the regional business tax (IRAP) to fund health services. The basic rate of IRAP is 3.9%, but a higher rate of 5% can be applied in regions with large healthcare deficits. There are two tax rates on savings (27% on interest and 12.5% on income from financial investments).

  Foreign trade: The value of exports of goods (fob) was US$524.9bn and imports (fob) stood at US$549.6bn in 2011. The current-account balance showed a deficit of US$71.9bn, or 3.3% of GDP, compared with a deficit of 3.5% of GDP in 2010.

  Major exports 2011	% of total	Major imports 2011	% of total
  Mechanical machinery	18.2	Natural gas & oil	17.3
  Metals & metal products	12.9	Metals & metal products	10.6
  Textiles, clothing & leather goods	11.2	Transport equipment	9.5
  Transport equipment	9.7	Computers, electronic equipment & electrical machinery	7.5
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Germany	13.1	Germany	15.6
  France	11.6	France	8.3
  US	6.1	China	7.3
  Spain	5.3	Netherlands	5.2
  EU27	56	EU27	53.3

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  November 01, 2012

• Structure

  Italy: Economic structure

  Data and charts: Annual trends charts

  
  

  

  November 01, 2012

• Outlook

  Italy: Country outlook

  Italy: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The Economist Intelligence Unit expects the government of technocrats led by the prime minister, Mario Monti, to remain in office until the end, or close to the end, of the current parliamentary term, which expires in early April 2013. Although some risk remains of an early collapse of the government, we believe that the three main political groups supporting Mr Monti in parliament--the centre-right Popolo della Libertà (PDL), the centre-left Partito Democratico (PD) and a centrist grouping led by Pier Ferdinando Casini of the Unione di Centro (UDC)--would seek to avoid this. A second government crisis in just over a year would severely damage investor confidence in Italy's ability to tackle its economic and financial problems.

  ELECTION WATCH: Our central scenario is that the next election will take place more or less when it falls due, in April 2013, followed in May by the election by parliament of a successor to the head of state, president Giorgio Napolitano. Given the central role that the president plays in the formation of a government, parliament will elect a new head of state before a government is formed. The general election result is hard to predict for several reasons. The current political scene is highly fragmented and in a state of flux. The main parties are manoeuvring to align themselves with potential allies but no electoral alliances have yet been formed, partly because whether alliances are formed before or after the vote may depend largely on what changes, if any, are made to the electoral laws. New or recently formed forces are also likely to challenge the mainstream parties on the centre-left and centre-right, such as Movimento 5 Stelle (M5S) led by comedian and satiricist Beppe Grillo.

  INTERNATIONAL RELATIONS: Italy's international standing has improved under Mr Monti. While putting the public finances on a sounder footing, Mr Monti has been prominent in the EU debate on the need for a pro-growth strategy to counterbalance fiscal austerity, as well as collective measures aimed at breaking the link between struggling banks and sovereigns, and preventing financial market turmoil from destabilising countries that are adhering to their budgetary targets. Nevertheless, his work may be at risk of being negated by future political instability. Italy will remain for some time a risk to the survival of the euro zone and the stability of its financial sector.

  POLICY TRENDS: With its public debt heading for 126% of GDP (the largest in absolute terms in the EU and over 20% of the euro area total) and its economic growth prospects poor, Italy will remain vulnerable to shifts in investor sentiment if its commitment to fiscal consolidation and liberalisation is seen to be waning. At best, reforms to increase productivity and improve growth will have only a moderately positive impact in the medium to long term. Adjustment efforts in other peripheral euro area countries such as Greece, Ireland, Portugal and Spain started to reduce unit labour costs as early as 2010, while in Italy they are expected to rise in 2012-13. The government, employers' associations and all but one major trade union have agreed to overhaul the industrial relations framework to boost productivity. But plans to increase the importance of plant-level productivity-related pay are likely to be difficult to implement without all the major unions' participation. Liberalisation of some closed service sectors has made some progress, but other reforms, to improve competition in energy and transport, may not be approved before the next general election so could be abandoned by the next government. The labour market reforms enacted in June 2012 seek to redress the imbalance between overprotected workers on long-term contracts and a growing number of workers on temporary contracts with no protection. However, the measures to ease restrictions on dismissals were watered down at the last minute so are unlikely to prove effective.

  ECONOMIC GROWTH: Owing to a combination of greater fiscal austerity, a deterioration in business confidence and weakening external demand, the Italian economy slid back into recession in the second half of 2011 and we expect it to remain there until the second quarter of 2013. Real GDP is estimated to have contracted by 2.2% in 2012, after growth of just 0.5% in 2011. Another contraction is forecast in 2013, albeit a more modest one, of 0.8%. Our baseline forecast is that the economy will return to growth of about 1% a year in 2014-17. The acceleration will depend on moderately stronger demand elsewhere in Europe and an improvement in consumer and business sentiment in Italy. A more prolonged dip in economic performance is a risk if fiscal consolidation in Italy and elsewhere in the EU depresses demand by more than we expect in our central scenario, or if business and consumer confidence remain depressed, further delaying a recovery in domestic demand. Another significant risk to growth prospects is that instability in Italy and the euro zone causes interest rates on Italian debt to rise sharply, triggering a debt default and a banking collapse, because Italian banks have large holdings of government debt. This might also force Italy to exit the euro as the only way to re-establish normal banking activity.

  INFLATION: Annual average consumer price inflation (on the EU harmonised measure) slowed to 2.8% in October having averaged around 3.5% during the first nine months of 2012. We expect it to slow further in the final quarter to give an average of just over 3% for the year. For 2013-17, we are forecasting an annual average inflation rate of around 2%, reflecting weak aggregate demand growth and modest wage increases. Although wages have risen in nominal terms, they are still negative in real terms. We believe wage growth will remain moderate, given continued weakness in the labour market.

  EXCHANGE RATES: Although not our central forecast, there is a high risk that several countries will exit the euro zone during the next two years. Such fears have contributed to a flight from euro assets and partly explain the volatility of the currency, which has fluctuated in a range between US$1.20:EUR1 and US$1.35:EUR1 during 2012. The euro strengthened moderately in September-October in response to central bank intervention and stood at US$1.27:EUR1 in mid-November. Even assuming that it survives in its present form, the euro will remain volatile because of shifting risk appetite, protracted economic weakness and lower reserve accumulation by China. We forecast average exchange rates of US$1.26:EUR1 in 2013 and US$1.25:EUR1 in 2014-17, but sharp movements in either direction remain a significant risk.

  EXTERNAL SECTOR: We expect a marked improvement in the current-account balance during 2012-17. From a deficit of 3.3% of GDP in 2011, the gap is estimated to narrow to 1.6% in 2012 and remain close to balance in 2013-17, turning positive during the second half of the forecast period. This reflects weak import growth because of reduced domestic demand, moderately stronger growth in exports of goods and services from 2014 and a shrinking income deficit, as non-resident ownership of high-yielding Italian government debt has declined.

  December 01, 2012

• Forecast

  Italy: Country forecast summary

  Country forecast overview: Highlights

  • The Economist Intelligence Unit's baseline forecast is that the technocratic government led by Mario Monti will last until the next election, in April 2013. However, there is a high risk that former prime minister Silvio Berlusconi will withdraw his party's support after he was found guilty in the first instance of tax fraud. There is little prospect of an alternative stable government after the election, making another technocratic government under Mr Monti a possibility.
  • As support for the political parties currently stands, a coalition of parties ranging from the hard left to the centre-left looks the most likely to emerge with a majority, but the election outcome is hard to predict, as the political scene is highly fragmented and could become more so.
  • Faced with a dramatic crisis of confidence in Italy's ability to service its debt, the Monti government accelerated fiscal consolidation plans begun by its predecessor. Progress should be made, but we forecast that the deficit will still be around 1.5% of GDP in 2015-17, reflecting weak economic growth prospects and higher interest rates on government debt.
  • Rolling over public debt of 120% GDP will be arduous, and may require further indirect support from external actors, notably the European Central Bank (ECB), although in future this will only come with tough conditions attached that will tie the hands of the government. A risk is that if such help were needed, it might not be available or prove insufficient, which could result in default, a banking crisis and forced departure from the euro zone.
  • Given the need for ongoing fiscal austerity and a sombre outlook in most export markets, we expect real GDP to contract by 2.4% in 2012 and 0.8% in 2013, followed by a return to modest growth in 2014-17. The Monti government's reforms to increase productivity and improve growth performance will have only a moderately positive impact, and only in the medium to long term.
  • Weak domestic demand, stronger but still sluggish export growth, and an improvement in the income balance as a result of lower non-resident holdings of government debt should allow the current-account deficit to fall from 3.3% of GDP in 2011 to close to balance during 2013-17.
  • We expect consumer price inflation to slow from an average of 3.2% in 2012 to an average of about 2% in 2013-17, as economic activity remains sluggish. A weak euro and rising oil prices from 2014 will prevent a sharper deceleration. If Italy were forced to reintroduce a national currency, its likely rapid depreciation would lead to much higher inflation.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	-2.4	-0.8	0.9	0.7	1.0	1.0
  Consumer price inflation (av, %; EU harmonised measure)	3.2	2.0	1.9	2.1	2.3	2.2
  Budget balance (% of GDP)	-2.8	-2.0	-1.8	-1.5	-1.4	-1.5
  Current-account balance (% of GDP)	-1.5	-0.6	0.0	0.3	0.3	0.2
  Short-term interest rate (av; %)	0.6	0.2	0.6	1.1	1.8	1.8
  Exchange rate US$:€ (av)	1.28	1.26	1.25	1.24	1.26	1.26

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  November 01, 2012

View detailed map

Country Briefing

Total area

301,333 sq km (2000 estimate), of which 38% arable and permanent crop, 15% pasture, 21% forests (1999)

Population

58.1m (US Census Bureau; end-2007)

Main towns

Population in '000s (January 1st 2006)

Rome (capital; Roma): 2,547

Milan (Milano): 1,308

Naples (Napoli): 984

Turin (Torino): 901

Palermo: 671

Genoa (Genova): 620

Climate

Mediterranean

Weather in Rome (altitude 17 metres)

Hottest month, July, 20-30°C (average daily minimum and maximum); coldest month, January, 4-10°C; wettest month, November, 129 mm average rainfall; driest month, July, 15 mm average rainfall

Language

Italian. German is a minority language in Trentino-Alto Adige, French in Valle d'Aosta and Slovenian in Friuli-Venezia Giulia. There are many regional dialects

Measures

Metric system

Currency

The euro (€)

Fiscal year

Calendar year

Time

1 hour ahead of GMT in winter, 2 hours ahead in summer

Public holidays

January 1st and 6th; Easter Monday; April 25th; May 1st; June 2nd; August 15th; November 1st; December 8th, 25th and 26th

March 15, 2012