Italy:
Economic Outlook Fair
Dwplle PoUllcal Turmoil! |
When the Venice Summit convcocs in late Juoe the present Italian Government probably will have fallen, the victim of deep differeooes amone the political parties over Communist participationuture government. Prime Minister Cossiga may siiii be 'a office, but onlyaretaker. The Socialists effectively have withdrawn their support for Couigi because tbe Christian Democrats have refused tooalition Including both leftist partkaj |
Cossiga will remain ia office as lone as be canote of confidence. Even if Couiaa's government collapses, none of tbe panics would likely be willing to nuke tbe ccecessions necessary loore viable successor prior to tbe oa lion wide local elections scheduled for May or June. Cossiga probably will be in office until the elections are over and the parties can begin serious negotiations oo what to do next. If Italy's pevviou* record holds, the elections themselves will bejncoociuiive and the negotiations toew government protracted.)
Since his government was installed last August, Cossiga has been unable to obtain lhe parliamentary support lo deal effectively wilh Italy's persistent economic, institutional, and public order problems. He has enacted some emergency measures, but onlyspecialasure- -has yet received parliamentary ratification. It is unlikely that any policies of note will emerge from Parliament between now and the Summit,ifeduced to caretaker sutuaj
There was no slowdown ia the Italian economyespite wide predictions to tbe contrary. Rapid economic growth look place wit bod substantial worsening in the foreign accounts; but inflation did reach worrisome levels, with consumer prices risingan annual rate exceedingercent by yearead.
The Cossiga government originally premised iu fiscal policy0 on forecastslump in real growthlowdown in inflation. Seeking to forestall recession, tbe governmentackage of measures toet stimulative effect on real gross domestic product0 ofercent. But the measures are stalled in Parliament and may have lo be reevaluated in light of new economic conditionsj
The strength of economic activity toward the end of last yearcaused government forecasters to raise their growth projection0 to
percent, a. rate we believe wul bebe eewcrnmem's economic measures arc implemented at all, they wO be carrMoirt^eceracil aad
probably wulinned impact cc uteecooorajf
-rife* a
*>
- -if:
Italy:
-Despite PoGticaJ Tetnrtoil,
In Italy.pcditics srt oyrrshadowios; iQ other mots. B7 trte Jane the present'nini win probably have faDcn, ahbongh to postpoac soj rncvoabic political crisis, the poliiical parties nay tore decided lo keep Prime Minister Cornea ia ofTiccaretaker capacity
The correal stalemate oo the Campania question stars from the nscocaralibuity of lhc Comnwnisnod Socialist poiitiooj with that of toe CtaiHonrane
The Counuoahis refine to support afromibey arc cartoned.
tbe Coanmnsrsts.
The Christian Democrats wiB not gram thejsti Cafajod muristries, allboachettt beo consider scene very Hotted cooper alioo who
Tbe Christian Dcrmcrati are sharply divided oa parly policy: some favor the icinrdtxiDciTt of tbt Ccnunn-nists in the psnrai process. Othersoalitxxi bvtadiin Acad uxoc cf the smaller parties. Many observers expected lie QninijoParty congress hi Fcbraiy to soften the party's attifdc toward the Camiwhu.ajority of the congressroposal ton tbe poisi'jiliiyofa fclr/tfoveroiivxl indedine ll*
if iW- dm mmnnn r l'.-ir
bstcad. CfarsbVt Democrats cadorsed tbe concept of an^ with the SccbHsK aad (nailer parties, leading tbe door ajar to some role Ibr theubs perhaps agreementrogram tbe party could snpoort ia PrrfijiocoL Tbe Carisriin Dcawcr. ls probably arc bopmg that this petition will jndocc tbe Socolnts to participate io kjixiimn lhal might extend Cossiga's uncre sagil alter ibe spring ckttiocc.
Despite tens ofvt support,ill continue Lt office as loos; as he caaonfidence vote. Tbe SocljIoU arc rdocuni to put aoy nore pressure on him for the time being io Luge part been use of tbe deep split in the Sofia Iht Party aboU what lo do oeat. Tbe left wins; apparently intends u> coordinate its moves witb the Coaunoanu. while tbe neat wing probably wooJd participateovernnxnt witbout the Coovocialistgranted ite prime ministry. This latter troop ilio might belo particirute in proposed interparty talks that wsnld keep Cossiga io place, hopingrograa agrtiuKiitrnigblo an acceptable goinrmcni formsda,
Tbe Coavannots have refuted to participate in Ibe proposedulions unless tbe Christian Democrats conceueros ram agreement coo id leadewrnraeot including toenolikely in view of tbe partyvote. Communist leaders teem cenvinced that their party's losses in last year's teaeri!esult cforernraeot and proeraro over which it had little or no mil uencc. (Therefore, they are reioctant to become Iswnhedimilar sioxaiion prior to lhe spring vote and may be hoping lo improve Ibeir own chance* with tbe voters by joint into the election
If Cossiga doesatuout hold ooll will be beta nse the unpasse over direct CcoHnooist particisauoauture government that hasthe parties fromnore stable governing fornnUa abo restrains themenginecrisis in tlx dart" Noaetbdess, Cossiga iwiS probably beaa cod by midyear. The parties wM be aoriing oi the rciahi of nnticowiae fcxij ekciiom >cbedakd (or Oiber May or Jane and rccvahsitiag their resvective pcaitoos oo lhetut ilj will be pnxrictcd neeoiiiUcca co the mi leund programew government.
tctaral PnHKct*
la UK spring rote, ibc advantages tat disadvantages of tbe three msjor parties en ley kcaJ. national, and International blues seem likely lo caned eachlibbciBci3.thc, ectioa result, rru/ prove lo be tocendasive lo the Utta locw_ Ufts Ihal tlmdr promise lo be rarolc^edj^
Ou the local level, ibese elections probably will serve as rrfereedums oa ibe Coosnuunsts' poor performance ia governing their mostcmcaod Naples.Since, In mostbeSccblists
have barked these Commoniw-led governments, ihconbee.pectodcriytowrrerfrcvnUu,
VCnrbtbar>mOT
will try to capita lire on Communist and Socialistin this regard. But tbey will be equally vulnerable lo ti tacks faun ibc two leftist parties la ' loaliiics where Christian Democrabc refasal lo sllow
4 InmcttKxcei these ec^
Christian Democrats and ihe government toS
Domestic Priorities aad PUrn Since hb govern mew was installed last August. Prime Minister Cccsiga hu been unable to obtain the parliamentary support required to deal effectively wilh Italy's pcrsbttnl economic, irmiiullcnal. cad public order proKems. Theoretically, ibc gwrranent hasocblbi pJedr io abstain on key votes.ractice, disagreements among the Chrisibaand Ihe other members and supporters of the
Social rxaaccaats. Liberak. Rcpob-(tyraied the regbbebe process. Hence, Cossiga seems to have abandoned ibof bb Immedbte predecessors oa enrrecting such basic ccooonikigh public sectoraaetirity growth, aad rbiac bbor cosu.
in the
ihc
Improve significantly uf the party can capitalize on its arguments that Cossiga's tenure hu proven that
Ihe CesTunubu. At the umc timcTlhTcooUnciLooo-nothini Cossiga govcrnmenl, dominated by the Christian Democrat car, hardly fail lo dampen that party's hopes of (access.ot dear how Use SccblisuwfllfueMlrasbmK.ilKir.rxup from an apparent willingness ton-Communbtefusal tos likely to alienate veters on
i of the.
Tbe Soviet invasion of Afghanistan hu oncebed the buc of the Italian Communist Party's relationship with Masco* In the course of the election campaign, the Christian Dernocrau can be expected to argue that the Communuts have not cut their lies to Moacow. berating the Convmunbu for coepliog iheirerf the Sc-Seisoico wiih criticism cf US couptcrmcasum and for their call, lor indcpeodenl European Initiatives to mediate between the two wperpowers. However, thb issue could cut both ways IfihcCcerusmnbtribe lulu* public's fears about the future of detente by linking the
Cossiga his enacted some emergency energy cooicrv.-lien policies, raising the price of petroleum asrickctriche oil stock requirement, imposing residential heatingd altering school to sllow for longer winter vacations. Bui of these meaiarcs have thus far recemd pariia-approval, and some, established by decree law, will empire sow unless ratined by Parlbment. The government recently obtained jnrliameeiary sappxt for Its decree bws on extraordinary aatitcnuristm only by making tU" i'. was certain that thb particular bsu* esuoyerTwidcsreead popular sopport and that CornrmuWra aad Socbtrttawoutdor leavoid appearing soft oa terrcTOrn-
In the unsettled polilical atmospherelmost <eruln to prevail bciweea now and thb rammer, economic considerations wiTlack scat lo virtually everything ebe in the minds of petfeymakerv No new policy Initiatives seem likely. Nor does tbe government have any reason lo believeailia-menury exnsemu will develop In strpport rf iny of iu already stated goab. Cortsequendy. il fat unlikely that any policies of note will emerge from Pailiamenf. particultrly If Useeduced to iireUter status,
Italy: Selected Economic Indicator*
usi ua
* Jr^jl
5 Reacted
toe lack attention tn it. ihc economy's (wllooiot tad, in part9 wu much better than expected. In fact, trooonuc activity picked up remarkably la tbe fourth quarter, wfch exports, consumption, and investment all scoring Urge gains. We estimate that real GDPercent lasttrong advance Irornrowth rates7espectively! 1
Tbc novelty9 was the strength of internal demand, Private consumption, buoyce* by blgbcrates,ercent- With productivityelping linns generate cash,our-year slump: plantapotdiitiresercent
Althoagb ccooomic growth wu rapid, tbe foreign accounts remained in good shape. Last year's current account surplus4 billion was down only about SSCd mfllico from the record levelwhich earned S6 billion inan improved government transfers balance were responsible for the strong current account (bowing. Tbe trade balance was slightly in dertaXlaslyear. In contrast8 bflUoa surplus8
The sour note in Italy's recent economic performance has been inflation. Consumer price increasesalmost continuouslynding the year at an annual rate in excess ofercent. While special factors such as the relaxation of rent controls and hikes in excise taxes undoubtedly contributed to inflation.
T-ble 1
US1
j
underlying pros una remained strong. Growth ofsupply is approaching annnal rata ofIncreased government iransferpesbed op consumer demand. Some iodttstricsworfcms dose looilknecta,skilled tabor and semifinished roods, are
The Cossiga government originally bused iu focal policyafc*ecMttof weak aggregate demandan cuing in inflation. The Cossiga fiscal program is detailed In0 budget andomnibus finance law, which were submitted io Parliament last fall for passage before the yearend budget deadline. But debate over economic policy proved so acrimonious thu both docstmcnu stalled in purtunsenury commil-lee sod the various provisionsng dealt with piece meal Government cevratfora are briar financed under ccntiauaoce lerabiion
In order to forestall recession, the government proomta'nation of fiscal measures designed toet stimulative effect cm real GDP ofercentage point. Proposed legon calls for culling Ui burdens on low income groups by raising personal esempiiorts, and on firms by reducing social securitypecial public works and he-rsebaildingire planned. At the same time, ceilings woo id be placed oa spending by Local and regional aerrerrimeaU snd co treasery borrowirj
Budget Minister Andrcatu conUndsSO billion limit on public sector borrowing0 Is |tiU vslld. Other cconombu are more skeptical, noting thai political praaure is rising for costly welfare projects and more spending by local nutlsorities. Large capital infusions will be required for lo^riddco state corpora -lions. Meanwhile, the unions are pressing for greater
Tbe premises of Cossiga's fiscal program may have to be rethought In view of new economic conditions. Ifmplemented at aft. il win be bane by basse aad will havemall net impact, and thb concentrated in ibe second half or ihu year. Tbe tax reductions would give ibc main lift to aggregate demand;ncrease public works spcodtng are likely lo become bogged down Ln Ibc perennial mi.es of undcrfunding and bureaucratic red tape. Expansionary fiscal policy probably would be countcraoed (oCDra-ckriUe degree by tbe actions of Use Bank of lulyj
runs* us naec rn niscocnt ratelaperceoci binasimam and it reportedly considering other adjustments.
Wtih the lira above iu partly in ihe European Monetary System, ibe government's cichinge rate policy hu come under fire. Andreatu in particular, however,trongseful anU-Lnririiion looL (alls for deal aaarc coming from firms that find their cornpetiuveness eroded by ri-ag cos-Inflation cUlTcresrtbh already have worsened coough lo wipe out the advantage gained by envious lira deprccbticct.orters are sreusting UwsonM tort of devaluation be carried out this spring *" j
The itrength of ccooornic activity toward the end of bat year hu caused government forecasters to raise ii- ii growth rmalcctiooshen the budget was tubmiltcd io October, real growth ofercent wu espeeled thb year. Governpokesmen now foresee growth ofigure7 percentage point shy of our estimate. Italy. Use only major Earopean country to be stisubtiag iu econor.iy. win costiine toesmeenk growth'
One unpleasant coocooiuru of strongerioosly ct peered demand win be worsening iclbuoc. Weearly increase in consumer price*2 percent Into tbeecord1 percentrice increases will be partjcslarly pronounced in the eaHy part of tbe year doe to hikes' the government coo trolled price* of electricity,services, and petroleum
shortfallearing athe government granted tbe comennies price relief al ycarcadas premised to keep retail pe ir oleum prices more closely ia line wiih world erwdchis meet bet with rnild weather, has made the swppty siiautioo far less critical: any shortfalls that may develop can probably be covered in lhc spot market. The oil import ceiling adopted0
restraint oa domestic consumption.
rapid inflation and economic growth in Italy than in ihe etooomics of its trading partners are likely to drop the currentJUJoo in Io deficit thiseficit this larrc shoald be of minor cooccrn to poucynukers; Italy has bad three consecutive year* of bigiih ample reserves available, this current accocnl showing shoakl perrnh Rome to hoM the line on tbe lira if desired.*
eal GDP growth is likelyercent. Consumption growth should *eaxco Satins stimolm provided by ibis year's tax cuts wears off. No major basic wage increases are in nrospect for privatemployees, altboogb larscr coa-owning adjvst-men Is for ci-il servants proCably win drive apespite the slowdown, iheould slip deeper into lhe red as tbeof [islrao ct porters declines frutherj
Energy
(At with economic policy issues, Rome continues to procrastinate ou energy questions} Except for some tr- Itching from oil to natural gas, Italy's energy Balance has not changed muchortbcrfuel substitution win not be feasible for several years, until sizable qnantilies of Algerian gas start armingdioe and until plans for coal-fudcd cicctridty gcneralioa arc realised. The National Energy Plan still projects that nuclear power willentral role, ahbongh siting problems remain unsolved and pcfiucal oppenilion is growing'
Government energy officials have been preoccupied hi past months with seen ring an adequate short-term supply of ofl. Caoghi between rising world erode prices and retail price ceilings. Italy's independent oilwhich traditionally snppty one-third of the domestic market, threatened largeacks. At one time, Rome was pnblidyperccrrt oil
Petroleum consumption roseercentith oil used by thermal plants and industry rising less than real output. Gasoline usage shot upercent but seems to be leveling off. Increased excise taxes, ccjaptcdisrd price ceiling, have resultedump in retail gasoline prices of aboutercent since the start of .'an year. The excise tax struct are iswitch from gasoline to diesel fuel; aulo diescl consumption4 percent9
ENEUationalecentlyycar mvestment program aimed at averting threatened blackouts. The program, involving lhe eonstroaicoeries of nuclear, hydroelectric, tbcrmul. andnts, is designed to raiseootercent ENEL's present capacity0 megawatts (MW) and to reduce dependence on oil in electricity generation from roughlyoercent over tbe decade. Despite reservations about thesector's ability to import and deliver coal, the government has approved the immediate construction of three new coal-firedoal-burning thermal plants are to0 MW of0 MW of planned new capacity. Coal consumption is expected to risenillioo tons annuallyillion tons by H
In line with the National Energy Plan, the EN EL program calls for the construction ofuclearOO-MWaddition to the two already sited and ander developer. The covcrn-mcnt has recently cleared one obstacle to nuclear power by rcsorvi ng competition among contractor* in favoringle lynr.nf reactor, the Wesiinghoose ligh: -iLer design.
Table I
te*:
Selected lattn Indicators
But ENEL's plans foe endear power may dash wilh oapreferred bub. Cossiga ha* tried to forestafl this political tea litter. Two year* ago, the government development and to demoee'rateli ability at cwerrode Socialbt ocexBiOoo io parliameniary en- au allyijy associating Rook very closely wiih the denement of unclear power by aolicitinc support from United State* oo theater nstdcai forcebei>eCr*nmnnisti hare pace returned Iran, ando the oppoutioo and arc becocruog increasingly leery of the nuclear bne. The chry Radicalrying to
aiional referendum on nuclear power. Local
govern menu, nntil they are bought off by promises
reduced powu rate* or special public work* invest-
meat, suanchly ccccsc nuclear plant siting in their these moves have censtribuied to rcgwoifluly will rrobably0 with no more restige by creating for him the pnbftchnage its electricity caning from nuclear olnvfled Liierlocuior In both Washington and ma,oe
European eapiub. Couiga may abo be hopingtactical Communisl support for bisPoBcy Attrtwirs aadto lie Italy more closely tocd
During hb tenure in office, Cossiga has ihaped hb Stales and the EC may be calculated to dispel Wesiern government's foreign policy lo improve Italy's interna- fears and to remove eiterual vetoes on Comrnnssbt ticeolstanduac. a* well ai lo cntanceomest* partrcipatKei in in* future Italian go>eriunenL thereby imageutcrBan.gbe Prime Mbiater apparently perssaadang the Coeamaarsts tojx more cooperative on isthat these twin oeueetrves can be achieved csnrremfcrrign policy isscesj by oemoostraUag Italy's icnjelariry with ibe Uniied
Stale* in the context of the Atlantic Alliance and by Cossiga's ability lo transform his country'*the Italian ECexpire* In support of US policies into more substantiveueuropean consensus snrjponivc of contingent, however, on domesikariety of internahe theater niKSear lorces
for example, lhe government was *bklo opt
Tradrbonalry. Italy has bee* sctnitrve to the cnaiuda of for participation largely because tbe CevumnoneFaBOpeanwhich it would be not*ttemp< to exploit nascentm tbe eicioded -that would consult with the United Suies program. Parliamentary appro-sl turned out to be
closer lhan expected, apparently beeauie ef theof some Socialist! and members ofhristian Democratic Party!
In tbe cases of Iranhaoisun. Cossiga has been reluctant lo impose economic sanctions against cither Tehran or Moscow 'because of the importance of Romees with these countries. The government also is vulnerable to charges from the Communists and some Socialists that by icVipting tbese countermeasarcs Rome would be coolributing to mounting international tensions and Mindly following US policies- For these reasons, Italy has tried lo develop iu positions on these issues in caejvacuoo with hs Community colleagues.
Ifaretaker cap-city,lmost certain he will become more cautious on foreign policy issues. He is hkdy to bepnrticularly circumspect in his support of US policies.foe example, Romeinal decision oo the choice of sites for ground bunched cruise missiles scheduled ut be based in Italy as part of Ibe theater nuclear forces
Original document.
Comment about this article, ask questions, or add new information about this topic: