Italy Emu Chances Improve
Prime Minister Romano Prodi will travel to a Group of Seven (G7) summit in Denver this week confident that Italys chances of taking part in the 1999 single European currency launch have never looked better.
Italys fortunes have been brought about as much by German budgetary difficulties and French problems with soaring unemployment as by the Prodi governments own progress in restoring order to unruly state finances.
French and German woes are tilting the balance of opportunity in favour of the so-called Club Med countries of Italy, Spain and Portugal to join the single currency. I ths looking relatively weak, Italy relatively strong and the French seem a bit desperate, he said
To qualify for economic and monetary union (EMU)membership, EU countries must be working their budget deficits down to three percent of gross domestic product by the end of 1997.
The EU will decide early next year which countries have made the grade to join a first wave of currency union members.
Until recently, France and Germany were widely seen as hot favourites to qualify on time for EMU while Italy was cast in the awkward role of the straggler.
Analysts wondered how Italys powerful northern neighbours would find a face-saving way to keep Rome out of EMU at the start while keeping the back door ajar for a later entry.
The change in the landscape has been dramatic. Forecasts by the Paris-based Organisation for Economic Cooperation Development (OECD) last week showed Italy, France and Germany now neck-to-neck in the race to cut their budget deficits.
All three were seen finishing 1997 with a public deficit of 3.2 percent of gross domestic product, just short of the three-percent target stated in the Maastricht Treaty.
Italys achievement is even more remarkable considering that last year, when Rome ran up a 6.7-percent deficit, its chances of meeting the Maastricht target were rated at practically nil.
A year ago, few people abroad thought that we would get anywhere near three percent, said Lorenzo Stanca, chief economist at Credito Italiano in Milan.
Accusations that Italy has resorted to one-off measures and sleight-of-hand to massage the figures have acquired a hollow ring after Germany floated a plan to plug a revenue gap by revaluing gold reserves.
Since taking office in May 1996, Prodi has presided over one of the most concerted efforts in memory to put public finances on firm footing. Some 100 trillion lire ($58.9 billion) worth of cuts and savings have been pushed through in the past year.
Prodi, one of only a few Italian premiers to have stayed in office long enough to attend two successive G7 annual summits, has also shown skill and resilience as a political operator.
In April, he overcame objections from communist allies to sending an Italian-led multinational force to Albania by relying on support of the opposition centre-right Freedom Alliance to win a mandate in parliament for the mission.
More recently, he has shown his determination to roll back the frontiers of state involvement in industry.
Michele Tedeschi, the chairman of state holding company IRI, which in its heyday was one of the largest industrial conglomerates in the world, was ousted at the weekend for not moving fast enough to sell off assets.
His replacement Gian Maria Gros-Pietro has been given three years to privatise IRIs remaining subsidiaries, which include flag carrier Alitalia, and to wind up its affairs. ($ = 1697 Italian Lire)