Italy's Pension Paradise Faces Fund Shortfall

By Richard L. Wentworth, Monitor | The Christian Science Monitor, September 16, 1994 | Go to article overview

Italy's Pension Paradise Faces Fund Shortfall


Richard L. Wentworth, Monitor, The Christian Science Monitor


`ONE day, the Labor Minister will arrive and say: `We're not in a position to pay the pensions.' And this won't happen in a distant day. It will happen very soon," says Giovanni Sgritta, a sociology professor at the University of Rome.

Mr. Sgritta is not referring to United States Social Security but to the Italian government's pension system - one hot potato that Italy's old political class has tossed to Prime Minister Silvio Berlusconi.

Like the American system, Italy's is a pay-as-you-go affair, meaning that the tax money paid into the system by current workers is not invested but is used to pay present pensions. But pensions here constitute a whopping 15 percent of the gross national product.

And because workers' payments are not sufficient to meet all pensions, a deficit of 20 trillion lira ($12.7 billion) is expected this year. This deficit comes at a time when Italy is already burdened by an enormous public debt and governed by a right-wing coalition of parties that seems too busy squabbling with each other to enact concrete solutions.

"Our public debt is 2 1/2 times the foreign debt of all of Latin America," exclaimed Foreign Minister Antonio Martino, a University of Chicago-trained economist, last week, in remarks that shook the financial markets. "We have a country that is on the edge of {financial} bankruptcy."

Other government ministers, however, denied Mr. Martino's latter warning.

Nonetheless, alarm over the pension situation has already led 459,000 public and private workers to apply for early retirement in the hopes of avoiding possible future cuts in benefits.

The public debt and the pension problems are the result of decades-long rule by an Old Boys' network that was ready to promise just about anything for guaranteed votes. In the last two years, judicial probes conducted by investigating magistrates in Milan and other parts of the country have exposed widespread political corruption. These revelations have discredited an entire political class. The parties most heavily implicated in the scandal are the Christian Democrats - who led the country in coalition governments for more than 40 years - and the Socialists.

The doling out of favors by politicians to political friends became endemic.

"The Italian pension system, like the health-care system, the public workers, and other forms of the welfare state developed in the last 25 years in accordance with two political pressures that were apparently in conflict but substantially convergent: the Christian Democratic interest in creating and maintaining an assisted or parasitic political clientele and the interest of the left in gaining and maintaining the consensus of those who received favors from the welfare state," writes commentator Giorgio Bocca in La Repubblica newspaper.

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