Good News for Italy: A Labor Accord and Low Interest Rates
ROME — ITALY'S Prime Minister Carlo Azeglio Ciampi went to this week's Tokyo summit of the Group of Seven industrialized nations with some good news for his country's economy.
Before leaving Rome, Mr. Ciampi, the former head of the central Bank of Italy, wrung out of businessmen and union leaders an accord on labor costs. Subsequently, the Bank of Italy reduced its discount rate from 10 percent to 9 percent, the lowest in 17 years. The latter is a sweet victory for Italy's businesses.
"Business has made clear that one of the most important things for them is to have interest rates that are not a serious disincentive to investment," says an economic expert at a Western embassy. The two events coming so close together signal how serious the Ciampi government is about facing Italy's economic difficulties.
"They have created a somewhat more activist image than many Italian governments have succeeded in creating," the diplomat says. "This has had a positive impact in the marketplace. They've managed to lower interest rates, which is something of great importance, especially in keeping the budget deficit from spinning out of control."
Union leaders and the head of Confindustria, the association for executives, hailed the July 5 reduction of interest rates as a "prize" for their hard work. The lower rate also follows reductions elsewhere in Europe, particularly in Germany.
"Italy is achieving positive records while other countries have problems now," says a spokesman for the Banca Nazionale di Lavoro in Rome. "We're making progress with our economy. Now Italy is going to the G-7 meeting in Tokyo with good news and good figures. The main problem in Italy is the public debt, which is really huge."
The Bank of Italy, in cutting the discount rate, said it approved what it called Ciampi's anti-inflationary policies. The accord on the cost of labor envisions two systems of making contracts with workers: national contracts, with salary increases negotiated every two years at levels consistent with inflation, and commercial contracts, with salary increases every two years strictly related to productivity, quality, and other competitive factors. "It is an unprecedented accord that will increase Italy's c redibility," Ciampi said July 3, after the agreement was reached.
The agreement left Italy's largest and most left-leaning union, the CGIL, not completely satisfied. But even in union headquarters there is acknowledgment that the accord has its good aspects. "There's more room to make contracts," says CGIL spokesman Carlo Parietti. "This is positive."
Ciampi was appointed by President Oscar Luigi Scalfaro as prime minister this spring to succeed Giuliano Amato. In response to the damaging effects of the country's ongoing bribery and corruption scandals, both Mr. Scalfaro and Ciampi have emphasized the importance of achieving real political and economic reform without delay. Ciampi, who brought decades of experience at the Bank of Italy to his new job, was a startling departure from the past practice of naming politicians to the prime minister's office . He promptly appointed economic experts, not politicians, to the ministries of finance, treasury, industry, foreign trade, and agriculture - and even the Foreign Ministry.
One of the government's goals is to improve the performance of the lira, which has been badly battered in recent months in international trading against the United States dollar and, notably, the powerful German mark. The agreement to keep wage increases at more moderate levels than in the recent past was also reached with an eye toward Italy's competitiveness abroad.
Other encouraging signs, the diplomat says, include the new seriousness with which privatization is going forward. Ciampi wants the government to begin the sale of many large public companies before the end of this month, including the STET telecommunications industry (and its SIP phone company); AGIP, Italy's leading petroleum company; ENEL, the national electric company; and Banca Commerciale Italiana and Credito Italiano.