EC Prods Italy toward Fiscal Restraint despite Being a European Community Founding Member, Italy Must Prove Its Sincerity over Political and Economic Reforms before EC Monetary Union. ITALY AND THE EUROPEAN COMMUNITY

By Howard LaFranchi, writer of The Christian Science Monitor | The Christian Science Monitor, August 1, 1992 | Go to article overview

EC Prods Italy toward Fiscal Restraint despite Being a European Community Founding Member, Italy Must Prove Its Sincerity over Political and Economic Reforms before EC Monetary Union. ITALY AND THE EUROPEAN COMMUNITY


Howard LaFranchi, writer of The Christian Science Monitor, The Christian Science Monitor


WITHIN the European Community's family of countries, Italy is like an older child who is endearing, talented, yet worryingly unruly, who despite his age requires an extra measure of discipline.

And Italy, cognizant as never before of the threats to its future within that family, is showing signs it is finally hearing - and heeding - the reprimands.

The intensifying warnings from EC officials and elsewhere in Europe focus on Italy's economic performance and the threat its high inflation, profligate public spending, and mounting debt pose for participation later in the decade in an EC monetary union and single currency.

But worry extends to the political system as well, since broad economic reforms will not be possible without deep change in a patronage-fed, corruption-laced system that inspires little confidence among the Italian people.

One of the EC's founding members and its third-largest national economy, Italy has long been considered the most pro-European of the 12 EC nations. For most Italians, a European monetary union without Italy's participation remains unthinkable. Message hits home

So as expressions of doubt have multiplied about Italy's ability to discipline itself and meet the criteria for monetary union set in the pending Maastricht Treaty, examples of the message hitting home have begun to surface.

When EC Competition Commissioner Sir Leon Brittan suggested as recently as May that Italy cut its budget deficit by slashing subsidies to industry - which he said account for 28 percent of the deficit - he was largely ignored.

But last month, when the new government of Prime Minister Giuliano Amato announced sweeping privatization plans, Industry Minister Guiseppe Guarino told London's Financial Times, "We ought to be grateful to Mr. Brittan because he has made us realize we have to change."

In a tough and unprecedented upbraiding, the EC's council of finance ministers recently warned Italy that "strong measures cannot be further postponed" to rein in spending and other economic imbalances. Moreover, it said Italy's failure to meet Maasticht's economic convergence criteria by 1996 would cause "significant adverse repercussions throughout the Community" and relegate Italy to second-string status in the EC.

The slap in the face was well received by the country's major business owner and management organization, Confindustria, whose president applauded the Community for "calling Italy to order." The heads of such Italian industrial giants as Fiat and Benetton also welcomed the harsh words. Reforms seen as timid

Mr. Amato's intial "emergency austerity" deficit reduction proposals, approved Friday by the Italian parliament, include new taxes, spending cuts mostly in defense, and the privatization program. The plan has generally been received in Europe as too timid, but the prime minister is offering signs he has just begun.

Last week he announced an agreement to abolish Italy's sacrosanct scala mobile, the 47-year-old system linking most Italian workers' annual wage increase to inflation. As for the message he hoped the decision would send abroad, Amato said, "The most important point for the Italian economy and for those who watch it from the international markets" is that it should allow Italy "to become competitive again. …

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EC Prods Italy toward Fiscal Restraint despite Being a European Community Founding Member, Italy Must Prove Its Sincerity over Political and Economic Reforms before EC Monetary Union. ITALY AND THE EUROPEAN COMMUNITY
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