November 12, 2011 in Nation/World

Italian senators approve reforms

Slow growth at the heart of debt crisis
Don Lee Los Angeles Times
Associated Press photo

Sen. Maurizio Gasparri, of the People of Freedom Party, addresses other members of the Italian Senate in Rome on Friday during a voting session on reform measures demanded by the European Union.
(Full-size photo)

Transition in Greece

ATHENS, Greece – Greece’s new technocrat Prime Minister Lucas Papademos assumed power Friday at the helm of an interim coalition government that will seek to push through tough economic reforms and ensure the country avoids a catastrophic default.

 Papademos – who was appointed Thursday after two weeks of political turmoil that infuriated European leaders, horrified Greeks and led to mayhem on international markets – must now ensure his government passes Greece’s latest debt deal: a $177 billion agreement reached by the European Union on Oct. 27.

 It includes provisions for private bondholders to forgive 50 percent of their Greek debt holdings, details of which the new government will have to negotiate. He also must secure the next installment of the country’s initial 110 billion-euro eurozone and International Monetary Fund bailout, without which Greece will default in a matter of weeks.

Associated Press

ROME – Italy’s parliament is pressing hard to ratify reforms clearing the way for Prime Minister Silvio Berlusconi to resign, but it will be left to his successor to solve structural problems decades in the making that are central to the debt crisis now dragging down the European – and the global – economies.

The nation’s $2.6 trillion public debt is a result of low productivity, corruption, suffocating bureaucracy and poor tax policies. Its economic performance between 2000 and 2010 was so bad, according to some estimates, that only Haiti and Zimbabwe fared worse in average annual growth.

This year, Italy’s economy is forecast to grow at about 0.6 percent, compared to 2.8 percent for Germany, Europe’s economic powerhouse.

“That is the Italian problem – stalled growth,” said Vincenzo Vita, a senior member of Italy’s Senate.

On Friday, trying to mollify bond markets that have put severe pressure on Italy’s finances, the Senate voted overwhelmingly to approve reforms demanded by the European Union. The bill is expected to pass Parliament’s lower chamber, setting the stage for Berlusconi’s departure, possibly as early as today.

While the in-your-face billionaire became a symbol of all that is wrong with Italy, getting rid of him doesn’t change the country’s economic situation. Berlusconi is expected to be replaced by Mario Monti, a former European commissioner who spearheaded the EU antitrust suit against Microsoft and is highly regarded on the continent.

Establishing a stable government in Rome is seen as a crucial step to restoring credibility among bond investors and European leaders. Investors turned their focus on Italy, the world’s eighth-largest economy, this week after the Greek government fell.

The economic struggles of the weakest members of the 17-nation eurozone are roiling markets across Europe and beyond – Italy’s woes led to a major sell-off in global markets on Wednesday.

Among the measures that the EU has called for are public spending cuts, pension reform, sale of state assets and greater flexibility in labor law. But changing some of these practices is likely to face significant opposition from entrenched interests and a public highly suspicious of Italy’s political system and EU demands.

On Friday, scores of protesters, most of them young people, demonstrated outside the Treasury ministry building, hoisting banners demonizing the Italian president of the European Central Bank, Mario Draghi, as well as Monti, the presumed new prime minister.

Even though the government is already supposed to be operating under an austerity budget, the Defense Ministry recently ordered five new Maseratis, said James Walston, a professor at the American University of Rome who has lived in Italy since the 1970s. A worker in Palermo, in Sicily, was reported to have received thousands of euros in overtime pay for shoveling snow – in August, he said.

“There are continuous things like that,” he said.

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