Social partners react to new government's economic policy

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In July 2001, Italy's new centre-right government set out the details of its economic policy for the coming five years. In order to revitalise the economy, the government is concentrating on reduction of the fiscal burden, incentives to businesses, and labour market flexibility. There have since been clashes between the government, the employers and the trade unions over future reform of the pensions system and revision of the Workers' Statute. According to the Cgil union confederation, there is a danger that the government's policies will provoke a resurgence of industrial conflict.

After presenting its programme for its first 100 days at the end of June 2001 (IT0107190N), on 16 July 2001, the new centre-right government led by Prime Minister Silvio Berlusconi approved the 'economic and financial planning document' (Documento di programmazione economica e finanziaria, DPEF) for the years 2002-6. Together with the 2002 budget law, to be discussed from autumn 2001 onwards, the DPEF is the government's main economic policy document.

Approval of the DPEF was preceded by talks with the social partners, whose reactions to the formation of the new government were conflicting (IT0106188N): the positive reaction by the General Confederation of Italian Industry (Confindustria) contrasted with the strident criticisms expressed by the General Confederation of Italian Workers (Confederazione Generale Italiana del Lavoro, Cgil), and the more prudent 'wait-and-see' attitude assumed by the Italian Confederation of Workers' Unions (Confederazione Italiana Sindacati Lavoratori, Cisl) and the Union of Italian Workers (Unione Italiana del Lavoro, Uil).

The economic and financial planning document

The DPEF contains forecasts on the development of the Italian economy in the five-year period 2002-6. Economic growth seems set to be slower than envisaged by the previous DPEF (IT9804164N), which predicted a 3% growth in GDP for 2001. The estimate was revised downwards by the previous centre-left government during the spring of 2001. According to the new government, GDP growth will continue to slow down, settling at between 2.2% and 2.4% in 2001. In 2002, it should stand at around 3%.

The state of the public accounts, too, seems to be more problematic than was thought by the previous government. Prior to publication of the DPEF, the issue provoked heated debate centring on the budget deficit estimates announced by the Minister of the Economy and Finance, Giulio Tremonti.

The government plans to reduce the public debt gradually over the next few years. The public debt/GDP ratio should fall from the 110.5% recorded in 2000 to 106% in 2001. Only in 2003 is it expected to be less than 100%, which will still be above the threshold of 60% established by the 'Maastricht parameters' for EU Economic and Monetary Union.

Planned inflation has been fixed at 1.7% for 2002. Under the tripartite national intersectoral agreement of 23 July 1993 on incomes policy (IT9803223F), the planned inflation rate is the reference point for wage increases set by national sectoral collective bargaining.

Against this macroeconomic background, the government has stated that development is the main goal of its economic policy. This will require a revival of economic growth, on which increased employment will also depend. Moreover, the public debt must be reduced.

Economic growth will be promoted by expansionary policies and structural reforms. Three areas of intervention have been singled out: fiscal reform; reform of the labour market and welfare system; and reform of the public administration.

In the labour market area, as anticipated by the government's programme for its first 100 days, two main instruments are envisaged by the DPEF:

• a decree law on fixed-term contracts, transposing the EU Directive (1999/70/EC) on the matter and the agreement on implementation signed in May 2001 by some Italian employers' associations (including Confindustria) and trade union organisations (including Cisl and Uil, but not Cgil) (IT0105282F). The increased flexibility should boost employment; and

• measures designed to encourage the regularisation of clandestine work, mainly by offering relief on tax and social security contributions.

Other measures are intended to encourage investments, as follows:

• abolition of taxation of profits reinvested in capital goods. A similar measure was introduced by the first Berlusconi government in 1994, but now it applies to a wider range of investments (in training, for example). Moreover, self-employed workers, and not only firms, are now eligible;

• investment in public works totalling ITL 100,000 billion during the next five years. The financing of these projects will be divided equally between the state and private companies;

• simplification of the administrative and accounting procedures required of firms;

• abolition of inheritance tax. Bearing in mind that the Italian productive system is characterised by large numbers of family firms, according to the government this measure will remove a considerable burden on business; and

• liberalisation of property renovation and repair by simplifying administrative procedures and relaxing regulations. The government hopes that this will revitalize the building industry.

The government has set itself two objectives as regards budgetary policy - reducing taxes and reducing the public debt. The government intends to ease the overall tax burden by 1% per year for the next five years. To reduce the public debt, besides curbs on public spending, a large-scale privatisation programme will be launched.

From 2002 onwards, the lowest state pensions will be increased to ITL 1 million per month, starting with older recipients.

As far as social security spending is concerned, the DPEF outlines a number of principles on which reform of the pensions system should be based.

• flexibility, in terms of giving workers the choice of when to retire. According to the government, the ban on combining a state pension with income from work should be lifted. Moreover, the contributions system should be extended to all workers and the pensionable age should be liberalised;

• boosting pension funds. Here the intention is to liberalise the use of the end-of-service allowance so that the worker can choose either to have it paid as a lump-sum on leaving a company or retiring (as at present), or invest it in a pension fund (IT0104184F); and

• protection of acquired rights.

As regards equal opportunities, the DPEF sets out only generic indications: for instance, that measures should be introduced to favour labour market entry by women and people at risk of exclusion -such as disabled people, former alcoholics and ex-drug addicts.

Main issues of debate between government and social partners

As to be expected, the reactions of the social partners to the DPEF have been contrasting. The president of Confindustria, Antonio D'Amato, declared that he agreed in general with the DPEF's approach. Confindustria's main doubts concerned the planned inflation rate, which it considers too high.

The reactions of the trade union confederations have been more critical, albeit with differences among them. First, the confederations believe that the estimates of economic growth are too optimistic. Second, they do not consider the planned inflation rate to be consistent with the real trend in prices, so that there is a risk that workers will be penalised in terms of the purchasing power of their wages. Third, the unions fear that the government will cut spending on health and pensions. Cgil in particular claims that, in order to comply with the budget constraints imposed by the EU, the government will be forced to reduce social spending to an extent greater than indicated by the DPEF, given that economic growth will be less than expected.

Since the approval of the DPEF, there has been lively debate between the government and the social partners on the economic policy lines that the government intends to pursue.

One of the key issues is reform of the pensions system. Not coincidentally, the DPEF makes no mention of a timetable for this reform. The government has also denied suggestions that the reform will get under way in autumn 2001 with the budget law for 2002. On the other hand, according to Cgil, Cisl and Uil, the government and the social partners should review the changes made in 1995 (the so-called 'Dini reform') before further reform of the pensions system begins. Moreover, reforms which weaken the public social security system should be avoided. Cgil has also said that it is not willing to discuss pensions reform until the question of the end-of-service allowance has been resolved - an issue on which there have been divergences between the unions and the employers' associations, and also internally among the former.

Another controversial issue is labour market flexibility. Heated debate has been aroused by the suggestion of the Minister for Industry, Antonio Marzano, that the Workers' Statute should be revised, in particular Article 18 which states that workers cannot be dismissed without 'just cause'. The question had already provoked controversy between the social partners at the beginning of the summer (IT0107190N). In the course of summer 2001, the governor of the Bank of Italy, Antonio Fazio, also stated that it is necessary to increase 'work-exit flexibility'. Confindustria agrees with this position, although Mr D'Amato has denied that Confindustria wants to reduce workers' rights. According to Confindustria, however, the perceived rigidity of Italy's labour market is a hindrance to growth, increased employment and the regularisation of clandestine work.

The suggested revision of the Workers' Statute has provoked a unanimous response from Cgil, Cisl and Uil , which have fiercely criticised the positions taken by Mr Marzano, Mr Fazio, Confindustria, and by leading industrialists like the honorary president of Fiat, Giovanni Agnelli. For the unions, this is an attempt to undermine workers' rights and protections. Moreover, it is not by making dismissal easier that employment is created, they claim.

A more prudent position has also been taken up within the ranks of the government by the Minister of Labour, Roberto Maroni and by his party, the Northern League (Lega Nord). Mr Maroni, in fact, has stated that the government does not intend to change Article 18 of the Workers' Statute - not out of fear of the unions' reaction but because it will not increase employment.

Strong criticisms of the government's economic policy direction were expressed in a document approved unanimously by the Cgil national directorate at the beginning of September 2001. This document states sharp disagreement 'with the economic and social policy set out by the government in the DPEF, which is damaging to the country and detrimental to the interests of workers and pensioners in that it is inspired by a mix of neo-liberalist and populist doctrine'. This assessment is similar to that expressed by the Cgil general secretary, Sergio Cofferati, in an interview with the la Repubblica newspaper. According to Mr Cofferati, in the light of the economic policies pursued by the government, one may expect conflict to resume in autumn 2001: 'With this government, increasingly aggressive and insensitive to the values of social cohesion, a breakdown of relations is imminent'.

Commentary

The first economic policy manoeuvres by the Berlusconi government can be related to neo-liberal economic doctrine and supply-side policies, whose main features are deregulation of the labour market, incentives to companies, reduction of the tax burden and privatisation. Behind them lies the conviction that it is competitiveness that will bring economic growth, with all its benefits. These are policies consistent with the attitudes of at least some of the social groups that support the new government. Since the electoral campaign, in fact, Mr Berlusconi has benefited from the backing of Confindustria and leading Italian industrialists.

The government's initiatives raise new challenges for the trade unions, at a time when internal divisions are becoming apparent, especially between Cisl and Uil on the one hand, and Cgil on the other. The events surrounding the agreement on fixed-term contracts and the metalworking sectoral collective agreement, both recently signed by Cisl and Uil but not Cgil, are emblematic of this discord (IT0107193F).

According to some commentators, Cgil is at the moment the government's main political adversary. The declarations of its general secretary on a resumption of conflict are indicative in this regard. According to Cgil, the unions must react to the new government's policies because they call into question a model based on social cohesion and the protection of workers' rights.

There is no doubt that many of the issues at the centre of debate between the government and the social partners are potential sources of conflict. On more sensitive issues like reform of the pensions system and revision of the Workers' Statute, the trade union confederations seem able to achieve unity, which may strengthen their hand in dealing with the government and the employers' associations. Moreover, differing positions have been taken up within the government between its radically neo-liberal members and more moderate ones. (Marco Trentini, Ires Lombardia)