At first, it was a decision of Italy’s constitutional court: an Italian law blocking the revaluation of pensions was declared unacceptable. Soon, the government panicked. The decision was fair and expected, since the constitution calls for an “adequate pension according to the income received during working life”. Everybody saw the decision coming since the law had been introduced back in 2013. The Italian Economic Minister Pier Carlo Padoan claimed to “respect the decision, yet the judges did not consider the impact of public finances”, as if a matter of right and principle would depend on the voluble Italian finances.
But of course a solution was found. Revaluation would be reintroduced for pensions below €3,000. It is not clear yet how constitutional principles would be suspended above the threshold. In the meantime, Padoan claimed to “have done the best he could”. Let’s wait and see if the judges will buy it — especially given that the original version the law blocked revaluation above €1,400; the government merely increased the threshold.
Normal People and Lucky Ones
Interestingly, the government-overfriendly newspaper _La Repubblica_ published some surprising articles claiming that many pensioners were willing to give up their money to save Italy. On the other side, on the radio owned by the Italian entrepreneurs association Confindustria, star-host Giuseppe Cruciani interviewed a former MP that receives a pension of above €2,000/month after having spent one week (five working days) at the parliament. The lucky politician had actually done nothing illegal — those were just the laws at the time, embodying a growing distance between normal people (whose opinions are misreported by _La Repubblica_) and lucky ones. The lucky ones tend also to be also the older ones, but that’s a different story.
The total cost of the revaluation operation threatened to reach 10 billion euros, an amount that would cause the Italian treasury to collapse. But that was not enough. Soon came another bit of news: the European Commission refused Italy’s request to extend the “reverse charge” on VAT to large distribution. The measure calls for allowing the Italian government to cash in more VAT from EU trade, to which the tax is normally not applied as a measure to encourage intereuropean trade. “A bolt out of the blue” commented Padoan, showing calculations that the Commission’s decision will cost some 800 million euros in decreased tax income for the Italian state.
It is not clear yet what will happen now to make up for the lost income. One thing is certain: Italy is looking more and more like an aging daredevil dancing on a tight rope. All the discussions blatantly focus on how to take more money and from where. This is the condition of the public debate, in a country that already boasts one of the highest tax rates in the world. Very little discussion is dedicated to promoting investment or incentivizing start-ups. At best, the Italians promised the European Commission that they won’t increase taxes on petrol, now that one liter costs around 20 cents more than in Germany.
What lies ahead? Fear, my friends. Italy was lucky enough to experience these bumps during the ECB big shopping year, with Mario Draghi’s quantitative easing spree having started in March. But it is already too clear that the risk has the face of Greece. If the beautiful Mediterranean country were to exit the euro, this would demonstrate that a way out is possible, and Italy would follow suit. A Greek exit as such would not be a big problem — the problem is the example. The Italians would love to do it, and speculators would be happy to attack Italy’s shaky finances. Or, better said, its monstrous public debt, currently estimated at €36,400 per Italian and not going down anytime soon. Welcome to Italy.