Italy is now two- thirds of the way through its six-month- long presidency of the European Community’s Council of Ministers, a position which rotates among all the community’s members. Already the Government of Prime Minister Bettino Craxi has won high marks for its successful handling of some highly contentious issues.
In some ways it is appropriate that it should be Italy that solves the EC’s problems over the admission of Spain and Portugal to the community, and the latest emanation of the controversy over the budget. Not only is Italy probably the major EC country with the fewest reservations about being a member of the community, but it is also a country that is riding high in Europe at the moment in terms of economic growth, success of Italian industrial companies and political calm.
Italy is not a country that doubts for a moment that it ought to be in the community. The political parties vie with each other to be the most European of all, and it has a strong commitment to the somewhat nebulous goal of European unity. The leaders of Italy in the early postwar period were convinced that only in a wider entity such as the EC could Italy’s serious internal political differences and the great disparities of wealth between north and south be overcome.
They also hoped that the community would bring them financial resources and economic advantages that they would otherwise lose – a hope that has on the whole been justified.
Yet despite this commitment to the ideals of the community, Italy’s membership has been characterized by the ambiguity so common to things Italian. As Francesco Forte, Italy’s Minister for European Affairs, said at the start of the Italian presidency: “Most of our politicians and bureaucrats think and operate in a basically un-European way.” The fact is that alongside its commitment to the aims of the community Italy has sturdily protected its own interests – in some cases claiming that to enforce community regulations may be impossible, either for political or bureaucratic reasons.
Lately, however, Italy has been on its best behavior. Shortly before it assumed the presidency of the EC it accepted a community policy on wine production that hardly squares with its interests since it is the community’s biggest wine producer. It also backed down from the nit- picking interpretation of import regulations that were holding up the import of Scotch whisky into Italy at a time when Italians are gradually moving away from a preference for national brandies toward the British product.
Partly, no doubt, the change of attitude was politically necessary if Italy was to carry any conviction as president of the EC. Partly, however, it seemed to reflect a more orderly attitude to relations with other EC partners, a clearer view of what Italy ought to be able to obtain from them and of the concessions it ought to be prepared to make. One reason for this was the arrival at the head of the Foreign Ministry of Renato Ruggiero, a civil servant with an unusually broad grasp of Italy’s needs in economic relations and the drive to get the sluggish Italian bureaucratic machine to go for it.
If the Italians are now getting their act together better, as reflected in the skilful handling of the presidency, it may reflect a greater self- confidence in the country as a whole. Italy has since the Second World War been a country of political stability – the same Christian Democrat Party has been in power all that time – but of governmental instability: more than 40 governments over that period.
But for the past 21 months Italy has had the same Government, led by Mr. Craxi, the country’s first Socialist prime minister. It has tackled some serious problems, thought about other ones and provided a degree of continuity that had not existed for years.
That continuity is complemented by the realization, both in Italy and abroad, that Italian industry is now among the most impressive in Europe. Fiat, the privately owned conglomerate, is the first or second- biggest- selling car producer in Europe. Olivetti, the data processing equipment maker, is virtually the largest European- owned company in its field, and probably the most profitable. Pirelli, the tire and cables maker, is an obvious survivor in the tire industry and a company that produces respectable though not glittering financial results. One has only to compare these companies with their European rivals to see just how far Italian industry has progressed in the past few years in rationalization, investment and labor relations. Only West Germany matches or exceeds Italy in industrial prowess and confidence.
The performance of these leading private sector Italian companies is matched by that of other concerns, including several in the state industrial sector, which is gradually being reformed and slimmed down.
Unfortunately, Italy’s industrial success does not of itself ensure that the usual indicators for the Italian economy all point in the right direction. Because of governmental instability Italy reacted very late to both the 1974 and 1979 oil shocks. Only by 1983 had the Italian authorities put their balance of payments current account back into equilibrium, thanks to stern restrictions on monetary expansion rather than to fiscal measures. Only in 1984 did inflation finally drop below 10 per cent, having been over 20 per cent at the beginning of the decade.
The Italian economy is resilient and enjoys considerable vitality, taking the form of fast spurts of growth. This is due in part to the hard- working nature and imagination of many Italians, and to the fact that many less- developed parts of the country are still catching up with the rest of Europe.
But it also suffers major defects. It is prone to balance of payments difficulties because of its near total lack of raw materials and indigenous energy supplies. Governments can rarely take unpopular economic action and the inefficiency of the civil service administration, local government and the state industrial sector means that government expenditure is always rising – far above taxation.
When the Craxi Government came to power in August, 1983, the economy was at last able to resume expansion, the balance of payments registering a current account surplus of over one trillion lire that year. Although gross domestic product declined in 1983 by 1.2 per cent, it grew by nearly 3 per cent in 1984. Bold action to cut wage indexation helped bring down inflation in 1984, which closed the year at about 8.5 per cent. The Government also managed to keep the public sector borrowing requirement to about the same level as the year before, about 93 trillion lire. This, however, is still more than 15 per cent of GDP, far above the level registered by almost all other industrial countries.
Yet 1984 closed with a current account deficit far above the original estimates – it exceeded five trillion lire. This was due in part to Italy’s traditionally high propensity to import, but also to disappointing export growth. Italy’s major European markets, led by West Germany, grew disappointingly slowly and the strength of the lira weakened Italian competitiveness. A series of setbacks prevented Italy from winning its due share of contracts in the Soviet Union, Eastern Europe, and in Algeria, a major energy supplier.
The same problems seem to be persisting this year, for which the semi- official forecasting agency Isco is predicting a current account deficit of 8.5 trillion lire and rather slower growth of about 2.3 per cent.
The same forecast also put this year’s average inflation rate at 8.5 per cent, instead of the Government’s target of 7 per cent, and with last year’s average of 10.5 per cent. The fact that inflation is no longer declining is attributed in large part to the fact that the Government is not succeeding in cutting its spending. The deficit is expected to go on rising in money terms and to continue to account for at least 15 per cent of GDP. National debt – the accumulated borrowing by the Government from the economy – will this year exceed national income.
The Government has not been able to hold down spending partly because of the sheer difficulty of finding items to trim, and partly because of the strong pre-electoral pressure for extra spending, notably a carefully timed rise in pensions. And the Government faces a further threat in June in the form of a referendum on wage indexation that could lead to a partial restoration of the cuts made last year and thus to a further boost in labor costs.
In this month’s local elections, voters seem to have signalled that they want the present coalition of Christian Democrats, Socialists, Republicans, Social Democrats and Liberals to continue. The opposition Communist Party lost support and the share of the vote won by the coalition rose, surpassing the results of the 1983 elections, after which it came to power.
In late June the Italian Parliament will have to elect a new president of the republic. That event and the local elections should determine whether Mr. Craxi continues as Prime Minister, or whether he gives way to a representative of the Christian Democrat Party.
Whoever governs the country will have an extraordinary advantage: a lull of three years before any more major elections are due.