BACKGROUND MATERIALS ON ITALIAN ECONOMIC AND POLITICAL PROBLEMS

Created: 9/23/1974

OCR scan of the original document, errors are possible

AGENCY

VVA5MI-.CTON. CC.

ANDUMZEOR

eptember

Background Materials ontccnuux

1. Attached are sone articles on Italian economic and political developments ^preparedcc*of

'^ol Econor

ITALY: AUSTERITY POLITICS

Thehrl Di-notry.lt' Petty hii'pWii-tt. but-ih;r.crni: ti.'r.oi remansas attfla-iized liber mmorceruster it/

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ihipttiacc:c'.'cd the qucilia-. t'o-ir tinhevfo! and ttaaiif Ik

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ddition,terEd not :

Amintore Fanfani at this time and thus made it impossible for leaders hiither Io the left to luin their d'Ssatisfaction into an effective challenge.

ThO left joined intSit)thai affirmed traditional party positions in general terms andcf onco again the ideological differences separating the Christian Democrats and the Communists. Some left-wing leaders, however, made it clear during debate that tha/oce open attitude toward the Communist Parly. Minister of Industry Do Mita 'went so far as to call for an undefinedin Ihc Communists, while others labeled v'ie Communistsnd argued thatsovereignly would not be "wounded" if they were to enter the government.

Just before Ihc Christian Democrats met. the country's three major trad? union confederations decided to press forn the austerityThe changes that labor wants resemble' rcnendments lo the program now being pushed in parliament by the Communists. Their common-goat is to reduce the impact of the program on lower income groups and to increase the burden on the wealthy.

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foorr^ livOJSidcs^rThc government could accept some cf the proposed changes in tho austerity program without seriously jeopardising its goal to boost taxes7ew of the proposals, hov/cver, such as reducing the increases tn utility rites, would cut into the heart of tlse program tn/ undermining tlie objective of reducing domestic demand.

The conflict over the austerity program cnutd still cause tumble, Imlihii appoais unlikely

POOR ORIGINAL

ITALY: AUSTERITY BEGINS

Minister Rumor'* government ackage of austerity measures last1uSr- jdtrifrigtXTJtlom ic.1

The auslerily program provides for an in* treaso in corporate taxes fromoercentan increase in some categories of personal income la* along wilh mcasuies lo improve the taxpaciius. The value-added lax on iome basic consumer items and on luxury goods rvill be raised sub-.tsnlialty. Gasoline taxes wilt increase byr-nls per gallon bringing the cost jl premium loC0 per gallon, andanJ employee contributions for health scr-rices will go up.

These increases are designed to raiserevenues7 billion. Most of the fOnds will bo used to lower the large budget deficit.

demand and, if government cstimaies arcwill hold giowlh of Ihcgrossnatiunaltoercent per year and reduce imports somewhat over Ihe nextonths.

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ellVUt bilily-lo^adiriin islcr the -in if ica Iehe three labor confederations arc untied in their dislike of the program, which they fear will result in increased unemployment ar.ct more intlalion. They are divided, howc/er, over how fat labor shuuld go in trying to bring about changes. Some labor factions arc preparedeneral strike while others are caunsclifg moderation. The tbicc con fedorahis weokond to formulate an official re;ponsc to tho government's proposals.

programirst slcp toward the goat oHmproving Italy's international cicdil standing. The new .tax measures will dampen domestic

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:.ycn tl labor goes along, the government willU of implementing the austerity "measures. The Italians are nctorious-'y adept al circumventing (axes; mcs! ere probab'y unwilling to acceptin their present level of consumption for thoSkeof thelof national welfare. This>&ctor, combined wilh the cumbersome naturo^/fwttio Italian bureaucracy, could hinder the government'slo produce results rapidly.hat docs exist for the progr.im eou'd evaf quickly in the facc-'ol rising price* and ing disposable income.

ivw Although the coalition parties arc publicly committed to support the program, ths polilical scene remains tense. The Socialists heve made their Suppo>Lconlliir;:nt upon acceptance of tliis prog>ani by tir^otii/ed labor. The dominantDemocrats, mtviiivvhilc. arc i" cocci poderious inlcin,il qtimcL!Party kadcts areshaip'y divided tivci tho implicAlioiis of Christiandefeats inardinian regional clvclioti. The lell-wiio-abcMticreyrcvt It against the leadership uf Aniintoto Fa^tamNJI* :se tssi-cs

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- will he hollyy Ihc NatipnaV-Counci:--

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. POOR PIMA!

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4

postponement of the Christian Democratic Party's NationalNcouncil meeting, originally set for today, isthe serious internal quarrel that nowthe paity. TheChristian Democrats' highest deliberativeMeet instead on

Christian Democratic loaders are sharply dividedthe setbacks suffered by tho partydivorce referendum on Maynd the Sardianianelection inNjune. The Christian Democratic'vithoderates in tho party, views theseas evidence that the party raust respond morethan in the past to the desire of theinnovative social and economic programs. Thewidespread that the party must also find new andfaces to replace, or at least augment,'the stable of

older Christian Democratic personalities who havethe party for years and account for the "musical chairs" quality of postwar Italian governments. Many Christian Der.;ceruts fear that "the party risks losing the dominant position it has held since the end of World Kar II if it does not act on these issues.

The debate has come to centeryenr-old party leader Anintore Fanfani. During raos'fc of his long career, Fanfani was associated with the partyXs left-of-center elements, but he has recently acquirodNi moreimage. Criticism of Fanfani is rife within the party's left wing, which holds him porsonhlly responsible for the downturn in Christian Democratic fortunes. -Whether the left is able toeal threat to Fanfani, however, will depend mainly on the position taken by the moot influential of the party'sForeign Minister Aldo Horn. There are signs that Moro will join tho opposition lo FanC.ini, althought untilall. i

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ThfcChrinti-in Dcrrocrats' weakened position has also exposed^^hem to increased pressure fro.ii their Socialist conlitiontjpartiiers and fron organized labor. Thehave obcorne more assertive in coalition deliberations and nay pusnVcventually for sone cf tho more important ministries traditionally held by the Christian rcmocrats. The labor confederations, meanwhile, will meet next week to formulate ari$official response to the government's austerity prog win. Labor is likely to press for sharp cuts in the vast stateof the Christian Democrats' main power bason.

Their,ty is divided over how best tothe situation, "i'he party secretariat, however, reportedly has ordered "that ho action be undertaken that would worsen the Christian Democrats' internal crisis cr leadhance of government before next fall. Corr-iu-nist chief nerlinguer fcels^that overlyunist moves at this time mighthifta right within the Christian Democratic Party.

Original document.

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