Pressure is growing on Italy's Prime Minister Mario Monti not to accept an intervention
Ex-minister: "Before we end up like the Greeks we want to show we are able to save ourselves"
Italy's year-old double-dip recession extended into the second quarter of 2012
“We can do it alone” is the latest rallying cry to be heard in Italy as economists and politicians shower Mario Monti with proposals to use the country’s own vast but often dormant resources to slash its debt mountain rather than become hostage to the perceived diktat of Germany and Brussels.
Initiatives range from the patriotically modest to politically opportunist. But they add up to a crescendo of protests that the prime minister will find hard to ignore as he considers giving up sovereignty in exchange for the uncertain outcome of intervention to prop up Italy’s debt by eurozone bailout funds and the European Central Bank.
The latest proposal was registered in parliament on Tuesday by two centre-left MPs – Giulio Santagata and Giacomo Portas – who believe Italians can be persuaded out of the national good to pay some of their taxes in advance.
“Before we end up like the Greeks we want to show we are able to save ourselves,” Mr Santagata, a former minister and convinced European, told the Financial Times.
While he recognises that this measure alone would not solve Italy’s debt problem nor is likely to become law, he is hopeful that it will spur the government into action.
More: Is Europe facing ‘psychological dissolution’?
Far more radical is a proposal by the centre-right party of former prime minister Silvio Berlusconi that is shaping up into a major campaign platform ahead of elections due early next year. It will be presented to Mr Monti on Wednesday.
Renato Brunetta, an aspiring finance minister who is working on the initiative, says it would aim to slash Italy’s €2tn of debt by some €400bn over the next five years. Speaking to the FT, he declined to reveal details but confirmed it centred on setting up a Triple A-rated private fund that would use non-strategic public assets allocated by the government as backing to issue bonds.
“We can do it on our own; Italy is a rich country, with a high savings propensity,” Mr Brunetta said.
Savings on debt interest payments, currently amounting to a crippling €80bn a year, would be used to cut taxes and break the vicious cycle of austerity and recession.
Italy’s year-old double-dip recession extended into the second quarter of 2012, according to official statistics released on Tuesday. Gross domestic product fell 0.7 per cent quarter on quarter in the three months to June, worse than consensus forecasts, and was 2.5 per cent lower than a year earlier. Contractions were registered across the board in industry, services and agriculture.
Not for the first time Mr Berlusconi is using promises of tax cuts to woo voters while his centre-left rivals pledge to impose a new wealth tax.
Mr Berlusconi is also intent on stirring up latent but rising anti-German sentiment in Italy – not so easy in the north where a dynamic economy is heavily dependent on Germany’s locomotive, but an easy siren call in the south which resembles Greece in its reliance on public sector spending.
“We are in war even if we do not hear the sounds of bombs,” commented Angelino Alfano, secretary of the centre-right People of Liberty, attacking Germany’s “excessive rigidity” and opposition to using the European Central Bank as a true central bank. Last week a Milan newspaper owned by the Berlusconi family criticised chancellor Angela Merkel as leader of the “Fourth Reich”.
A more moderate and stop-gap approach has come from Francesco Giavazzi, a Bocconi university professor.
Arguing that a request for a conditional bailout would be an unacceptable loss of sovereignty made by an (unelected) technical government ahead of elections, Mr Giavazzi proposes that Italy stop auctioning medium and long-term bonds, totalling about €100bn, until the vote next spring.
Instead the Cassa Depositi e Prestiti, a state-financing agency controlled by the Treasury and managing some €220bn in postal savings deposits, could use its banking licence to secure loans from the ECB to buy Italian debt.
Eliminating a financial tax on bond interest payments would also encourage domestic investors to buy more, argues Mr Giavazzi. He is backed by senior bankers who believe that in the long-run Italy, the world’s third largest bond market, could become like Japan where the bulk of sovereign debt is held by domestic investors.
So far government officials have reacted coolly to the welter of proposals, indicating that Mr Monti will stick to his “steady as it goes” approach involving spending cuts, high taxes and only modest asset sales. Mr Monti will only say that he has not decided yet whether to ask for eurozone help. But pressure is clearly mounting on Mr Monti to demonstrate the political courage to put Italy back on its feet – without external help.