Tension rises ahead of Italy’s confidence vote

By Alessandra Cardone

ROME, (PNA/Xinhua) — International and domestic analysts looked worriedly at Italy’s crisis on Tuesday, on the eve of a crucial confidence vote scheduled in parliament on Wednesday.

Prime Minister Enrico Letta is trying to save his government after five ministers belonging to Silvio Berlusconi’s center-right party resigned. Tensions between the two center-right and center-left parties are running high.

On the streets of Rome, however, people seemed unresponsive to the political turmoil. They may have more tangible worries to struggle with. On Tuesday, sales tax (VAT) increased from 21 to 22 percent, a measure the government had promised to postpone but was then unable to avoid.

A simultaneous increase in fuel prices (between 0.7 and 1.5 cent/liter) contributed to hurt consumers’ pockets. Also on Tuesday, the National Institute of Statistics (ISTAT) released new data on youth unemployment: 40.1 percent in August, which is the highest rate since 1977.

“What happens with the confidence vote is uninteresting to me, I see no political will to change for the better,” businesswoman Elisabetta told Xinhua. The entrepreneur, who preferred not to give her surname, owns an advertising agency in Rome.

“From 2007, the agency has lost between 30 and 40 percent of its business, while taxes escalated up to 60 percent of the profits,” she said.

“The VAT increase is a bad decision in my opinion, it will hit all economic sectors. And for what? To feed a huge bureaucratic machine, the state, which isn’t able to give any help back to us,” Elisabetta said.

Shop owner Loredana Tirrito, a young mother of two, agreed on the gloomy perspective. “The government could have taken many other measures to increase public revenues, why VAT?” she asked. “It will hit trade, shopkeepers, merchants — in other words, people that could make the Italian economy run again.”

She decided not to implement the 22 percent VAT until Jan. 1. “I will keep prices as they are, while I warn clients about the coming increase. But my suppliers will immediately apply the new VAT,” she added.

Recurring political uncertainty is a most dangerous trend in Italy, according to Nicola Borri, professor of economics with LUISS-Guido Carli University of Rome.

“Foreign investors don’t like uncertainty, especially in rules and laws,” Borri told Xinhua. “In Italy, you never know how many taxes you have to pay and to which rules you have to obey,” he added.

With many looming deadlines, it is difficult to predict if the confidence vote on Wednesday will result in a stronger government. Italy has two main commitments to fulfil, Borri said.

“First, to keep deficits within the European Union limit of 3 percent of GDP. It will require a new financial package, though small, which has to be done by mid-October,” he said.

Secondly, there are 240 billion euros (US$ 324 billion) of public debt to be refinanced with public bonds by the end of 2013. If instability persists, interest rates and the spread with German bond benchmark would get higher and higher.

For common citizens too, business was not different from financial markets. “Business is affected by the political situation,” stall owner Renato Aida told Xinhua.

“Between February and May, people were really careful in spending. They came to me asking for four potatoes, not one more. From June, it has been better, people were ready to buy more,” he said.

Aida, who has been running a fruits and vegetables stand opened by his parents in 1944, said he wishes for a different future for his children. “I would not suggest them to take my business. There are too many risks, too much uncertainty.”