Social partners discuss government's economic policy

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During September 2002, the Italian social partners and political parties conducted a wide-ranging debate on the government's economic policy. The measures drawn up by the centre-right government to fight inflation and address the deteriorating public finances have been criticised by the social partners, which are demanding a clear intervention to foster economic growth. The Cisl and Uil trade union confederations, in particular, have stressed the need for full implementation of the recent 'Pact for Italy'. The Cgil union confederation has expressed strong criticisms of government's policy and called a general strike for 18 October.

The economic policy of the centre-right government led by Prime Minister Silvio Berlusconi has been at the centre of a wide-ranging debate, involving the various political parties and social partner organisations, since the beginning of September 2002. Numerous issues have been discussed, notably: the mounting inflation rate, which has been forcefully emphasised by consumers' associations and trade unions; the slow growth in GDP, which worries the social partners and is cited as the main problem by the employers' associations; and the worsening state of the public finances, which seems to make the achievement of the government's objectives harder, in particular that of reducing the tax burden.

Unsurprisingly, the government has come under fierce criticism from the centre-left political opposition, while the General Confederation of Italian Workers (Confederazione generale italiana del lavoro, Cgil) confirmed its disagreement with the government's policies, as well as the breakdown of its relations with both the government and the other main trade union confederations, when it refused to sign the 'Pact for Italy' (Patto per l'Italia) - the agreement on the labour market, the tax system and the South of Italy, signed by government and other main social partner organisations in July 2002 (IT0207104F). However, during September the signatories to the Pact also urged the government to spell out the economic situation more clearly and to abide more closely with the conditions of the agreement. The Confindustria employers' confederation in particular has asked the government to intervene rapidly and with determination to foster economic growth.

The economic situation

During 2002, the government has repeatedly revised its economic growth forecasts downwards, being forced to do so by the development of the international economy, which has proved worse than the government expected. After an initial prediction of a 2.3% increase in GDP for 2002, the figure was scaled down to 1.3% by the government's economic and financial planning document issued in June 2002, and then most recently to 0.6% by the Minister of the Economy, Giulio Tremonti, during a parliamentary hearing on 19 September.

The worse than expected performance of the Italian economy, with corresponding lower tax revenues, has increased the current public deficit and hampered reduction of the public debt/GDP ratio - two key parameters for European Union macroeconomic convergence. As a consequence, the government has recently announced a set of financial measures that should yield increased revenues, amongst other things through the settlement of tax liabilities and a reduction in public spending, the intention being to progressively eliminate the net deficit - as envisaged for 2003-4 by EU agreements - and to reduce the deficit/GDP ratio. To reach these objectives, the government issued in September two decrees to implement closer controls on public spending and to reduce some tax concessions available to businesses.

As regards inflation, the planned rate for 2002 - the main reference point for incomes policy - was set at 1.7%. However, actual inflation has progressively increased over the course of the year, reaching a rate of 2.4% in August, and it looks set to increase even further in September. The June 2002 economic and financial planning document envisages a planned inflation rate of 1.4% for 2003. At the end of August 2002, in order to fight price increases, the government issued a decree which freezes some tariffs for three months, including those for electricity, gas, postal services and railway transport.

Besides provoking protests from consumers' associations, the worsening of the inflation figures has opened a debate between the social partners and the government (IT0209101N). The main trade union confederations - Cgil, the Italian Confederation of Workers' Unions (Confederazione italiana sindacato lavoratori, Cisl) and the Union of Italian Workers (Unione italiana del lavoro, Uil) - are unanimous that the forthcoming renewals of sectoral collective agreements on pay should be based on an inflation rate higher than the planned rate, which they argue is manifestly too low. Confindustria has opposed this proposal on the grounds that it would undermine the current incomes policy system based on wage restraint. Moreover, the government may find its difficulties exacerbated by the unions' demands, in that it will have to finance the renewals of public sector collective agreements in its role as employer.

Positions of Confindustria and the unions

Recently, Confindustria has repeatedly urged the government to take account of the problematic state of the international and Italian economy and devise measures to support economic growth, applying the provisions of the Pact for Italy with regard to the labour market, tax system and infrastructures. In mid-September, a Confindustria report on international and domestic economic trends contained a set of macroeconomic forecasts which were considerably more pessimistic that those made by the government's economic and financial planning document. The report invited the government to clarify the state of the public accounts and to continue with its policy of rigour and financial recovery. The president of Confindustria, Antonio D'Amato, in letters to Prime Minister Berlusconi and also at a meeting with him, set out the employers' priorities, stressing the need for a budget law which introduces structural measures to boost the competitiveness of the Italian economic system, rather than one-off initiatives. Accordingly, the major Italian employers' organisation has criticised the government's announcement of a tax settlement, as well as the freeze on tariffs in order to curb inflation, deeming this latter measure ineffectual and calling instead for greater commitment to liberalisation and privatisation.

Confindustria's dissatisfaction has been heightened by the government's approval on 20 September of a decree law to increase fiscal revenues by reducing certain tax concessions granted to firms. According to Mr D'Amato, this measure is damaging to the Italian economy and will trigger further recession by creating uncertainty and retroactively altering the business tax regime. The director general of Confindustria, Stefano Parisi, has claimed that the approximately EUR 3 billion of increased tax from businesses that the decree will produce will place a further brake on economic growth, which may settle at a level of only 0.2%. Confindustria has consequently asked the government to reconsider the contents of the 2003 budget law and to define measures to promote development by holding talks with the social partners, as envisaged by the Pact for Italy.

The trade unions have also strongly criticised the government, albeit for different reasons. Cgil has criticised the government for delay in reacting to the difficulties besetting the economy and the public finances, describing the measures envisaged - a freeze on recruitment in the public sector, possible spending cuts on schools and the health system, and the tax settlement - as inadequate, and calling the resources earmarked for the public sector collective agreement renewals insufficient.

Dissatisfaction with the government's initiatives is, moreover, shared by Cisl and Uil, the union confederations that signed the Pact for Italy. The two confederations' demands have concentrated on fulfilment of the provisions set out in the agreement of 5 July 2002. The Cisl general secretary, Savino Pezzotta, has said that it is essential that the 2003 budget law should allocate the funds necessary for implementing the Pact for Italy. Otherwise, the Pact will become Cisl's platform of demands and industrial action will ensue. According to Mr Pezzotta, it is important that there be sufficient resources to support policies for the South of Italy (Mezzogiorno), to reform the 'social shock absorbers' (the measures which help cushion the effects of job losses and restructuring - IT0205204F), and to launch the first phase of tax reform. Moreover, Cisl has declared its opposition to any personnel cutbacks in the schools system and the civil service. As regards inflation, Cisl has urged the government to introduce a price and tariff policy which goes further than the current three-month freeze, and has said that its economic demands for the forthcoming collective agreement renewals will be based, not on the planned inflation rate set by the government, but on a higher reference rate which would protect real wages whilst also being compatible with an incomes policy geared to reducing inflation.

Commentary

The current economic trend and the problematic state of Italy's public finances may strain further the relations between the government and the social partners.

Although the signatories of the Pact for Italy of 5 July 2002 are united in calling for its implementation, splits may open in their ranks when the time comes to assess the measures introduced by the government's 2003 budget law in order to remedy the poor state of the economy and the public accounts. The signatory trade unions are pressing for the full application of the Pact, with no reduction in the financial resources earmarked for its implementation. The Pact has been criticised by some trade union and political leaders on the grounds that it is too limited in its scope. Therefore, any scaling down in the application phase would be unlikely to be accepted by the signatory unions.

At the same time, relations among the main union confederations are marked by the division that opened up when the Pact for Italy was signed by Cisl and Uil but rejected outright by Cgil. The breakdown in relations among the confederations has been aggravated by a general strike called by Cgil for October 2002, long in advance and just after the Pact was signed. The general strike has recently been confirmed and is scheduled for 18 October. Given the way in which it has come about, this is a protest that essentially involves harsh and radical criticism of the government's policies - criticism which in certain respects is also directed against the organisations which, according to Cgil, have supported these policies by signing the Pact for Italy.

The various union confederations are at present pursuing goals that are largely similar: support for development and employment, especially in the Mezzogiorno; wage claims which offset the erosion of pay levels by inflation; and welfare measures which extend protection and improve the quality of benefits. However, the obstacles raised by their contrasting attitudes to the Pact for Italy, as well as by differences of opinion on concrete solutions - as in the case of possible reform of collective bargaining structure - mean that the rifts between the unions will be difficult to overcome in the short term. From this point of view, not even the forthcoming negotiations over collective agreement renewals in important branches of industry - the metalworking sector especially - seem likely to heal the breach between Cgil, Cisl and Uil. Indeed, for the time being, it seems inevitable that the traditional united platforms of bargaining demands will be abandoned, being replaced by fragmented claims which may trigger forms of 'competition' and 'outbidding' among the union confederations.

In this situation, a possible scenario is that the unions may be united in their criticism of the government, but significantly divided between those opposed to the Pact for Italy and those committed to its full application as 'the only anti-recession economic policy' feasible at the present time (in the words of Savino Pezzotta, the Cisl general secretary, in interviews with the newspapers Avvenire and Il Messaggero).

It may be possible to relaunch unified social dialogue and concertation if the Pact for Italy is reconsidered in some way, and if new talks are held on economic, fiscal and social policies. However, this strategy will be possible only if it can be portrayed as other than a defeat for the line taken by the signatories to the Pact (the government and most of the social partners). There are two actors that are able to perform a crucial role at this stage. The first is the government, which must take control of economic policy initiatives, seeking the agreement and involvement of the social partners, in accordance with the provisions of the Pact for Italy. There does not seem to be much room for manoeuvre at the moment, due to the constraints imposed by the public finances, but seeking viable solutions is the government's inescapable duty. The second key actor is Cgil. It would be difficult for it to lead a reunification of the trade union front, even given a possible 'crisis' of the Pact for Italy. More practicable, although not easy, would be for it to abandon its intransigent stance and open up space for dialogue with the other union confederations and the government. Furthermore, perhaps the government, for its part, might be tempted to 'close down' an area of conflict, so that it can regain consensus on its economic policy initiatives. (Roberto Pedersini, Fondazione Regionale Pietro Seveso)