Europe

Home page

Europe

Political divisions, stimulus realization to be first obstacles for Italy's new gov't

01 May 2013 01:21 (UTC +04:00)

Baku-APA. Less than a week after his appointment as Italy's prime minister designate, the honeymoon period for Italy's newest head of government, Enrico Letta, is already drawing to a close, APA reports quoting Xinhua.

Letta's diverse coalition featuring parliamentary backing from across the political spectrum and a cabinet featuring many sets of former rivals was never going to work together easily. But already, ranging from the disposition of a controversial property tax to the best way to strike the right balance between economic growth and fiscal austerity, Letta's allies have been at odds.

The biggest problem, according to expert observers, is how to pay for the reforms the main government manages to agree on.

"The Letta government has come up with a beautiful wish list program with something for everyone in Italy," said Franco Pavoncello, a frequent political commentator and the president of Rome's John Cabot University. "The only question is, how are they going to pay for it?"

Letta promised that with his government, the "period of austerity is over," vowing to focus his policies on growth. Without a growing economy, Letta said, "Italy will be lost."

He also promised a pro-European government, saying he will take his first trips as prime minister to Berlin, Brussels, and Paris to show that Italy is "Europeanist" and to illustrate that the "destiny of the entire continent is closely intertwined."

But it is the European Union that may end up putting the breaks on his economic stimulus measures, at least if they would force the country to increase its debt. Pavoncello pointed out that the EU has clearly stated it will not allow governments to disregard deficit thresholds in order to cut taxes, which is one of the key agreed-to planks from the new government (the controversial property tax will be stopped in June, though there is disagreement whether it will have been "abolished" or "suspended." The government also promises not to raise the country's value-added tax rate, a topic that divides economists).

"If a country must go beyond the deficit limits for capital investments, then that would probably be OK," Pavoncello said. "If they want to install high-speed Internet across the country, that is one thing. But it has been made clear that doing that in order to reduce taxes is something very different."

Letta did say that he would assure European leaders that Italy would continue to honor its budget commitments, but it is far from clear how he will manage to spend money and reduce debt without raising taxes.

The government did get some good news Tuesday, the day it passed the second of its two confidence votes, when ISTAT, the National Statistics Institute, reported that prices in April rose only 1.2 percent, their lowest one-month rise in more than three years.

ISTAT also reported that the national unemployment rate stayed steady at an already-high 11.5 percent in March, including a staggering 38.4 percent unemployment rate for young workers.

Combined, those two figures may strengthen Letta's argument for economic stimulus even if they don't provide a clue on how to pay for it.