Italy Economy Real Time Data Charts

Edward Hugh is only able to update this blog from time to time, but he does run a lively Twitter account with plenty of Italy related comment. He also maintains a collection of constantly updated Italy economy charts together with short text updates on a Storify dedicated page Italy - Lost in Stagnation?

Friday, October 31, 2003

From Gunboat Diplomacy to Compassion?

The sinking of a boatload of Somali immigrants off the island of Lampedusa seems to have set off something akin to a feeling of collective remorse in Italy. (Would that the human tragedy that is occuring on a regular basis just off the straits of Gibraltar could provoke a similar reaction here in Spain!) Indeed Belusconi (always the master of great theatre) appears to have had them near to tears over in Strasbourg.

Irony apart, even his old 'enemy' - the good-soldier schultz - is quoted as saying he has "the impression that what Mr Berlusconi said came from the heart". He could not however resist a reference to remarks which were last year attributed to Italian Reforms Minister Umberto Bossi to the effect that he wished the navy would open fire on ships carrying illegal migrants. Schulz is quoted as saying: "We are very happy that it is not those members of your government who want these boats sunk who are responsible for this issue in the (EU) home affairs council."

Well this is the second time this month I find myself asking whether Berlusconi is having a change of heart. Since I try not to engage in type M speculation, I don't need to answer this. What we might note is the way Interior Minister Pisanu is making the direct link with Italy's ageing population and (hence) pension difficulties. After the Greeks tried to raise the question in Thessalonika, we could ask ourselves whether the South of Europe (where the demographic collapse is most profound, and immigrants are traditionally less in evidence) is about to adopt a collectively different approach on this question.

Italian minister calls for European immigration quotas

The European Union needs to rethink its immigration policy by setting up a quota system, Italian Interior Minister Giuseppe Pisanu told the country's parliament Wednesday.

He was speaking two days after a boat carrying illegal immigrants, believed to be Somalis, sank off the southern Italian island of Lampedusa. At least 13 are known to have died but it is feared the death toll may be as high as 70. There were 15 survivors.

The parliamentarians observed a minute's silence in respect of the dead.

Pisanu, whose country holds the rotating presidency of the EU, put forward his scheme for quotas at a meeting of EU interior ministers last month.

The idea is that countries outside the EU would be granted quotas in return for undertakings to fight illegal immigration and take back their nationals who were refused admission to the EU or expelled from it. The proposal is being considered by the EU's executive arm, the European Commission.

"We have a duty to measure the size and complexity of the phenomenon of immigration and to seek to control it with rules and (the necessary) means," Pisanu said.

"Leaving the phenomenon to itself will cost us a lot more than any reasonable attempt to bring it under control."

Pisanu said that if there had been no immigration into Europe during the last 10 years it would have lost two percent of its population.

"If Italy has no immigration in the next 10 years... it will lose four and a half million people in the active population, in the 20 to 40 age range."

The illegal immigrants on the boat that sank off Lampedusa were Somalis fleeing civil war in their country, a news agency reported Wednesday.

The Roman Catholic agency Misna, which has close ties with humanitarian organisations, quoted Medecins Sans Frontieres (Doctors Without Borders - MSF) as the source of its report.

"They were fleeing from (the Somali capital) Mogadishu to escape the threats of the clans that lay down the law in Somalia. They were all civilians," Loris De Filippi of MSF told Misna, speaking from Lampedusa, south of Sicily, where some of the 15 survivors are being cared for.

The deaths have shocked Italy and Prime Minister Silvio Berlusconi called on "a Christian and civilised Europe" to open up to immigrants in a speech to the European Parliament in Strasbourg.

MSF quoted a survivor, Mohamed Osman, as saying that about 100 people, among them 17 women and seven children, left a small Libyan port on October 3. The boat's engine broke down almost at once and the vessel began drifting. After two days six people tried to swim to shore. The first death, that of a women, occurred on the fourth day.

On Tuesday the trial of two alleged human traffickers charged with manslaughter in connection with the deaths of 283 illegal immigrants in December 1996 was postponed so technical details could be examined.

Immigration: Europe's Difficult Road to Reform

The Economist has a couple of useful pieces this week ( here and here ) comparing the politics of immigration in the US and the UK. Meantime US economist Richard Freeman has an NBER paper where he argues we should "Stop spending so much time thinking about the WTO. Technology transfer, international migration, and financial crises have orders of magnitude more important impacts on human welfare and the state of the economy". In other words globalisation is not after all so much about trade as about labour migration and capital movements. And just how is Europe shaping up to the challenge? Well, by all accounts, not very well. But a surprising proposal has just surfaced from a very unexpected quarter. Immigrants in Italy may (eventually) get the right to vote. Even if this is a very limited proposal, it is certainly a positive one. I am just very surprised by its source.

Gianfranco Fini, the Italian politician who has spent the last decade orchestrating the transformation of a party that once claimed Mussolini as its ideologue, on Thursday got one step closer to his goal of refining that party into a moderate conservative voice.

His party, the National Alliance, presented a bill that, if passed, will extend voting rights in administrative elections to all legal immigrants who have resided in Italy for at least six years.

The bill, which will require the amendment of an article of the constitution, essentially gives non-European Union immigrants the same voting rights as their EU counterparts and allows immigrants to stand for municipal offices, though not for mayor.

Fini, deputy prime minister, was not present at the press conference Thursday, because he is at a summit meeting in Brussels with Prime Minister Silvio Berlusconi and other European leaders to discuss the European constitution, nor did he sign the bill. "But without doubt the paternity of this law is his," said Ignazio La Russa, National Alliance coordinator.

Fini's absence could also be construed as diplomatic. His proposal, which came out of the blue last week, surprising even party officials closest to him, set off protests in the conservative coalition, most vocally on the part of Umberto Bossi.

So angry was the leader of the anti-immigrant Northern League that one of his aides suggested that Bossi was ready to pull out of the government and prompt a crisis should the bill be presented. Bossi later backed down.

National Alliance, which in 1994 began shedding its loyalties to its Fascist roots, has long campaigned on anti-immigration platforms. For most political commentators, Fini's overture to immigrants has more to do with infighting in the governing coalition than with a sudden softening of heart. to synagogues and the Auschwitz death camp, and a planned visit to Israel, put off many times because of the uncertain political situation in the Middle East.

But he's only been partly successful in rewriting his party's history, at least in the eyes of public opinion, and National Alliance has never taken much more than the 12 percent of the vote it got in the 2001 election.

Fini's personal approval rating, on the other hand, hovers around 36 percent, at times higher than Berlusconi's. So many analysts and even members of his coalition suspect Fini of promoting great racial integration as a high visibility vote-grabbing gambit to build up support for a strong centrist party with a broader voter base.

If the center-right majority was caught off guard by Fini's proposal, the opposition was no less surprised. A headline in the Communist daily Il Manifesto last week greeted Fini's proposal with :"I can't believe it." The opposition, which has already has several proposals giving immigrants the vote in the works, has said that in principle they support Fini's bill. But after an initial moment of perplexity, Berlusconi has not refuted the proposal, at least in principal, putting off, or at least postponing, the possibility of a government crisis.
Source: International Herald Tribune

Italy: Doomed to Work?

The phrase comes from Morgan Stanley's Vicenzo Gizzo, not from me. Here he gives the first part of an extremely informative breakdown and analysis of the Italian pensions reform.

On October 3, the Italian government passed a draft for the reform of the pension system. This document will now be submitted to Parliament and amend a previous proposal that had been sitting in the Senate for months. We believe this is the most serious structural reform effort in several years. The unions have called a half-day general strike for October 24, but the chances of the reform succeeding are high, in our view...........

The new reform implies a two-stage process. In the first stage, from 2004 until 2007, the employees who intend to stay at work for longer, beyond the age of 57, will obtain a 32.7% tax-free bonus, equivalent to the standard social contribution rate currently paid by employers and employees. The beneficiaries will have the option of cashing in the bonus, depositing it in their social security accounts, or channelling it into private schemes. In a second stage, from 2008 onwards, the number of years that will give access to seniority pensions will be raised from 35 to 40. Up to the year 2015, pensions for those employees who still want to retire after 35 years of contribution will be heavily penalized.

This is not the first attempt to reform Italy’s generous pension system. It is probably worth reminding our readers that up until the early nineties Italian civil servants could retire with 20 years of contributions and receive a pension equivalent to the compensation of their last year at work. Two major restructuring efforts were delivered during the Nineties. In 1992, Giuliano Amato raised the legal retirement age from 60 to 65 for men and from 55 to 60 for women. That reform lengthened the reference period on which benefits were computed from five to ten years, raised the minimum number of years of contribution to 35, reduced the disparities between private and public sector employees, and replaced wage with consumer price indexation mechanisms. A second significant step was taken by Lamberto Dini in 1995. That reform linked pension benefits to a stream of work-life contributions rather than a reference compensation period.

The impact of the two reforms is clear. Data from the Department of Welfare (Nucleo di Valutazione della Spesa Previdenziale, Gli Andamenti Finanziari del Sistema Pensionistico Obbligatorio, June 2002) show that the annual growth rate of pension spending came down from 12.2% in 1990-92 to 7.3% in 1993-97, and dropped further to 3.4% in 1998-2001. Yet over the same period, pension spending rose in nominal terms from around €70 billion in 1989 to nearly €160 billion in 2001, i.e., from around 11.5% to almost 14% of GDP, at an annual average growth rate of 7.3%. Today, at 13.8%, Italy still shows one of the highest pension expenditure-to-GDP ratios among the industrial countries. The transition from defined benefits to defined contributions took place in an extremely gradual fashion. The defined-contribution system was fully effective only for the new entrants into the labour market in 1996. It was applied on a proportional basis, pro-rata, for those who had been at work for less than 18 years. In contrast, the reform kept the status quo for those who had worked for more than 18 years. It will take until the year 2035 for Italy to shift to a full defined-contribution system.

The baseline scenario assumes an increase in life expectancy of around five years from here until 2050, a slight rise in the fertility rate from the current 1.3 to just above 1.4, and net immigration inflows of around 120,000 a year. The model rests on an eight-percentage-point rise in the activity rate to 72% mainly on a higher female participation rate and a five point drop in the unemployment rate to 4.5% by the end of the reference period. This progress limits the drop in the employment rate to only 14 percentage points over the next 50 years, or 0.25% a year, despite a 28% fall in the working age population. A strong productivity growth rate of 1.7% keeps real GDP on track for an average growth rate of 1.5%. While labour force participation has gone up in the recent past at a pace of more than one-half a percentage point a year, this progress has led to a marked deceleration in productivity growth rates. The combination of higher participation rates and strong productivity, as implied by the RGS model, is an aggressive assumption, in our view, and may hide risks of an even more unpleasant spending dynamic.

Yet, even under such favorable assumptions, the pension expenditure-to-GDP ratio, after some initial stability, goes up rapidly from the current 13.8% to a peak of 16% around 2035 before easing back to 13.6% in 2050. The ratio of pension expenditure to GDP could be conveniently decomposed into the product of a ‘legal-institutional ratio’, given by the average pension to the productivity per employee; and a ‘demographic ratio’, given by the number of pensions to the number of employees. This second ratio could be further broken down into (1) a dependency ratio -- the over-65 population to the working-age population, aged 20-65; (2) an eligibility ratio -- the number of pensions to the over-65 population; and (3) the inverse of the participation rate, which we label here the employment ratio.

In the 2006-15 decade, the dynamic in pension expenditure to GDP is likely to be almost entirely driven by demographics, as the baby-boom generation kicks in. Note that benefits paid during this period are still mainly linked to average earnings, due to the long transition phase imposed by the Dini reform. In other words, expenditure goes up with the number of pensions, while the average pension fails to decelerate quickly enough to offset the boom in retirements. When we move towards the middle of the forecasting period, pension schemes become less expensive as a larger number of employees whose pension is computed on defined contribution retires. This trend extends well into the final part of the reference period when it is also coupled with end of the impact of the baby boomers.
Source: Vincenzo Guzzo, Morgan Stanley Global Economic Forum