The Day of Reckoning

By Frederick Painton

Budget crises sweeping the Continent cause the fall of Italy's government

In what has become almost a tradition in Western Europe, the bad news was presented to the public at the height of the summer vacation season in order to lessen the immediate outcry of national pain. With millions of his countrymen at the beaches and in the mountains, Italian Prime Minister Giovanni Spadolini proclaimed a stringent austerity package, describing the proposals as being of "historic proportions." They were indeed, but they also contained political dynamite with an unexpectedly short fuse. Only five days after the big economic squeeze was announced, seven Socialist ministers resigned from Spadolini's 28-member Cabinet last week in a move that in effect felled his 13-month-old government, Italy's 41st since World War II.

The angry Socialists walked out of the five-party coalition to protest the rejection by Parliament of one of the four decrees in the austerity program. The measure, opposed by the oil industry, was designed to curb tax evasion by tightening up fiscal controls on refiners and distributors of petroleum products. It seemed a small matter on which to bring down a government, but the Socialists took the defeat symbolically because it was caused by about 30 Christian Democrat Deputies, the so-called franchi tiratori, or snipers, who, although ostensibly loyal to the government, voted secretly against the measure. "Under these conditions," fumed Socialist Leader Bettino Craxi, "the country is literally ungovernable. Democracy is forced on its knees if powerful pressure groups can prevail over the will of Parliament and the general interest."

It was not the first time that the snipers had sabotaged legislation by the Spadolini coalition, but in the past, the defeated measures usually were soon rewritten and passed on a vote of confidence. This time Craxi seemed to be deliberately seeking to force new elections some time in the autumn in the hope of increasing the Socialists' 10% share of the national vote. Encouraged by healthy Socialist gains in recent local elections, Craxi has made no secret of his ambition to become Italy's first postwar Socialist Prime Minister.

As stunned as everyone else by an August crisis, Spadolini at week's end called a final, two-hour meeting of his Cabinet, which formally dissolved the government. He then visited President Sandro Pertini, 85, to announce the decision. Pertini is expected to confer this week with political leaders of all parties before offering the mandate to form a new government

Italy thus became the latest country to suffer from the epidemic of budget crises that is sweeping the nations of Western Europe. Last week Belgian Prime Minister Wilfried Martens' center-right coalition introduced an austerity budget containing what he called "drastic" cuts in public services and hikes in value-added taxes. Italy and Belgium are the Continent's biggest spenders: their budget deficits amount to 12.6% and 11.6%, respectively, of their gross national products.

But even West Germany, still an economic powerhouse, was forced in late June to raise $3.3 billion through increases in taxes and cutbacks in social services after a bitter political battle that almost fractured Chancellor Helmut Schmidt's coalition of Social Democrats and Free Democrats. In France, growing budget and trade deficits that fuel inflation forced President Francois Mitterrand's Socialist government to stop trying to swim against the cutback current: devaluation of the franc was reinforced by a four-month wage-and-price freeze that is expected to bring a 2% drop in purchasing power, the first such fall in 24 years.

The prize illustration of all the problems of living beyond one's means was Italy. Inflation is crackling along at 15% annually, the highest rate among major industrialized nations. For the first half of this year, government spending was running at a rate that would result in a deficit of $50.5 billion for 1982, $14.5 billion more than foreseen. If nothing is done now, the 1983 deficit could exceed $72 billion, about 20% of the G.N.P. Spadolini's new program aims at saving the government more than $41 billion over the next 17 months, starting with an imposed budget deficit ceiling of $43.3 billion.

The sting is hitting everyone in Italy. Overnight the price of gasoline rose 27-c- to reach $3.06 per gal., the highest in Western Europe. Effective immediately or within a few weeks, Italians face higher costs for such services as electricity, telephone, state-controlled housing, postage, social security contributions by employers and health insurance fees. Simultaneously, spending for pension increases, unemployment benefits and local government outlays was curbed. Value-added taxes were increased by an average of 2% to 3%, and company taxes rose 25% to 30%. By September, a second round of austerity measures is expected to raise taxes even more. If the package holds together, every Italian will be paying an additional $722 a year for ordinary living expenses, either through increased taxes or reduced benefits from the public coffer.

Why has Italy's spending careened more out of control than that of its neighbors? One reason is flagrant abuse of the welfare system. For example, 5.3 million Italians now get disability pensions, more recipients than in any other country in the European Community. The cost: $15 billion per year. It is acknowledged that most of the supposedly disabled pensioners are perfectly healthy and that many are employed full time. The cheating is so deeply entrenched as to make quick eradication almost impossible.

As in France and Belgium, the cutbacks have been greeted with open hostility in Italy by both the labor unions and the employers' associations. The three major unions have consistently rejected Spadolini's yearlong attempt to abolish the scala mobile, a system whereby increases in workers' salaries are automatically linked with the rise in the cost of living. Spadolini can thus expect a confrontation with labor in the autumn. For its part, the Confederation of Italian Industry has complained that the increases in the cost of goods and services, if necessary to reduce the budget, will inevitably translate into higher prices and production costs. Consumer demand will decline, say the employers, along with the competitiveness of Italian goods on world markets.

The Prime Minister's dilemma is familiar enough to the Organization for Economic Cooperation and Development's chief economist, Sylvia Ostry, who points out that "in Western Europe the state takes on the obligation to provide both a comprehensive social insurance guarantee and a steadily rising standard of living." That was fine as long as economies grew fast enough to pay for this, but as growth has slowed, deficits have risen. Ostry's solution is straightforward: "What the state hath given, the visible hand of the state must revoke." That will not be easy. It will require, she says, "a perception of common interest among the social partners. The test is likely to be political." Italy last week proved the point.

With reporting by Walter Galling/Rome

This file is automatically generated by a robot program, so viewer discretion is required.