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21st of November 2018

Economy



Rome’s bet on dramatic rise in state benefits draws Brussels ire 

Waiting outside a government office to pick up €30 in monthly family allowance, Simona Chiantese said she had never been able to find full-time work in her small town north-east of the Italian city of Naples.

While she finds occasional employment as a beautician to make ends meet, the 24-year-old is among the fifth of workers in the southern Campania region who are currently unemployed. “In this town, and in the south of Italy in general, we believed so many things for so long and we’ve always been disappointed,” she said.

Her fortunes may be about to change. As part of its first budget since taking office in May, Italy’s populist coalition government has proposed a radical scheme that could dramatically increase welfare payments to poor and unemployed Italians to as much as €780 per month.

Details about who will be eligible for the so-called citizens’ income programme — the signature policy of deputy prime minister Luigi Di Maio of the anti-establishment Five Star Movement — how it will be distributed and when it will be introduced remain unclear. 

But with workers in southern Italy aged under 30 earning a median wage of €840 a month for their first job, falling to €700 for those without a university degree, the policy has generated understandable excitement.

“What they’re proposing would be a first step for me and my husband to settle down,” said Ms Chiantese.

Simona Chiantese has never been able to find full-time work in her small town north-east of Naples © Emanuele Camerini/FT

The policy, for which Rome is budgeting €9bn a year, is part of a gamble by the government that a sharp increase in state spending will help jolt Italy’s ailing economy back to life following a lost decade. 

While other large European economies have recovered from the financial crisis, Italian gross domestic product remains stubbornly below where it was in 2007.

The Italian government has justified the rise in spending that will sharply increase its budget deficit by predicting that the economic stimulus and boost to consumption will help the economy grow by 1.5 per cent next year. 

Only by returning to growth, the government argues, will Italy be able to reduce government debt, which stands at the second highest in the eurozone as a proportion of economic output.

However, the European Commission and private sector economists strongly disagree.

The commission, which this week predicted growth of just 1.2 per cent in 2019, has called the spending plans an “unprecedented” breach of its rules and taken steps that could result in Italy facing punishment fines. The Bank of Italy expects GDP growth of just 1 per cent.

The streets of Pomigliano D’Arco near Naples © Emanuele Camerini/FT

If Rome’s growth bet fails to pay off, the concerns of financial markets about the sustainability of its debt may be violently reawakened. 

Yields on Italian 10-year debt rose 6 basis points to 3.404 per cent yesterday, and Italy’s sovereign borrowing costs have risen by about 180bp since election in March.

Mr Di Maio argues that citizens’ income, which could take the form of a pre-charged card, will not only boost consumer spending, economic growth and tax revenues but also “abolish poverty”.

The Five Star leader, who grew up in Pomigliano d’Arco, said it would help convince ordinary Italians that the state could play a positive role in their lives, boost their self worth and ultimately create employment. “We must try to remotivate these people,” he said.

Naples locator mapNaples locator map

However, many believe that the policy could prove an expensive mistake. 

Andrea Montanino, chief economist of Italy’s Confindustria business association, said that such generous welfare payments might boost domestic consumption but that any gains risked being offset by higher Italian borrowing costs and lower business confidence.

“It is an instrument to combat poverty, but not one that increases employment,” he said. “You will probably have higher spending from the poor, who have a higher propensity to consume, but if confidence is damaged then businesses will reduce their investment into the economy”.

He also pointed out that paying unemployed people as much as €780 a month to stay at home reduced the attractiveness of low-paid employment, making it a disincentive to work.

Silvio Berlusconi, the former Italian prime minister who is now in opposition, has said that the citizens’ income plan will damage economic growth, calling it “a joke” and the budget “the enemy of employment, business and Italy”.

Clemente Cibelli has been out of work since the closure six years ago of a foreign-owned home appliance manufacturer © Emanuele Camerini/FT

Carlo Marino, mayor of Caserta, a town near Pomigliano d’Arco, said that citizens’ income did not address the fundamental problems facing his region. 

He called instead for structural reforms, such as a cut in red tape, which he said would be more effective in attracting investment and creating employment.

“The south needs policies that increase competitiveness . . . that help companies deal with bureaucracy,” he said. “Then we can have growth that can become employment.” 

For Clemente Cibelli, 52, who has been out of work since the closure six years ago of a foreign-owned home appliance manufacturer outside Naples, it is not government handouts he needs, but the chance of a proper job.

“In this area there are only closed factories,” he said. “We need to attract new companies. A subsidy is certainly great, but people like me want to get back to work.”

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