Implementing structural reform: a review of progress.
The previous OECD Economic Survey of Italy noted that, given the high structural unemployment, the pace of structural reform needed to be stepped up, notably in the domain of privatisation, the restructuring of public enterprises and public administration. Since then, an impressive range of legislation and initiatives has been introduced covering product and factor markets, as well as the institutional framework. Both the tax reform and the move towards fiscal federalism, coupled with attempts to reduce the overall size of general government, should improve supply-side conditions. Labour markets, however, have so far failed to reflect the full benefits of structural reform, which normally take time to surface. The unemployment rate, after rising for four years into the economic expansion, eased to 11.9 per cent in July 1998 down from the record high of 12.5 per cent in April 1998 (Table 31), although slightly up from a year earlier. The improvement during 1998 concealed divergent regional trends, labour-market conditions tightening in the north and weakening further in the south. As a consequence, the gap between the northern and the southern unemployment rates widened to around 16 percentage points in the second quarter of 1998. In contrast, all regions shared in the decline in youth unemployment.
Increased north-south dichotomy
Although OECD projections show falling unemployment in 1999 and 2000, there is as yet no evidence of Italy's rate of structural unemployment having begun to decrease. On the contrary, recent OECD calculations, published in Economic Outlook 64,(67) point to a deterioration of structural labour market conditions during the 1990s, the estimated structural rate having increased to 11 per cent in 1998 from 9.7 per cent in 1990 (Table 31). This finding is consistent with continued increases in long-duration unemployment from 1994. It is also compatible with the evidence of a changed relationship between unemployment and [TABULAR DATA FOR TABLE 31 OMITTED] capacity use (Okun curve). This indicator points to an even stronger deterioration of labour market performance, the 1997 rate of unemployment having been about 2 points higher than in 1988, a year of similar capacity use in industry [ILLUSTRATION FOR FIGURE 28 OMITTED].
Examining regional unemployment trends over the past ten years suggests that higher structural unemployment and the upward shift in the Okun curve have been mainly confined to the south. In the centre-north, the relationship between industrial capacity use and unemployment has hardly changed: at 6.9 per cent in July 1998, the unemployment rate of the centre-north was close to that observed 10 years earlier [ILLUSTRATION FOR FIGURE 29 OMITTED]. Moreover, the male employment rate in the export-oriented north is high, and the rate of unemployment low by EU standards. in contrast, the southern rate far exceeded 1988 levels, especially allowing for the effects of new statistical methods used for measuring unemployment(68) (Table 32).(69) The south has traditionally been plagued by low employment and low participation rates, especially for women and the young (Table 32). The structure of its output, marked by under-industrialisation and excessive reliance upon non-marketable services (public sector-services), is strikingly different from that of the centre-north. During the 1990s, job creation has continued to lag behind the growth in labour supply, pushing up unemployment. Moreover, in terms of standard deviation, the dispersion of regional unemployment rates within the south is about twice as large as in the centre-north (Table 33). Underlying the deterioration of structural labour market conditions in many areas of the south has been the habitual set of adverse forces, including the chronic lack of infrastructure (mainly in the area of electricity, telecommunication and water), excess of administrative rules and regulations (red tape), a highly inefficient public administration and the presence of organised crime.(70) The 1990s saw a decline in public investment brought about by the need for fiscal rigour, the corruption scandal and a lack of policy co-ordination in the use of EU structural funds. The insufficient regional differentiation of wage and labour costs (Table 34) may also have played a role in deterring inflows of private capital. Empirical evidence points to southern unemployment having no effect upon the growth of southern nominal wages.(71)
Table 32. Indicators of regional labour markets(1) South Labour force 7.3 (millions) Participation rate(2) 35.0 Male 47.9 Female 22.7 Employment rate(3) 27.3 Male 39.3 Female 15.7 Employment 5.6 (millions) (100.0 per cent) Agriculture 0.7 (12.5) Industry 0.8 (14.3) Construction 0.6 (10.7) Services 3.6 (64.3) Self-employment 1.7 (millions) Agriculture 0.4 Industry} 0.3 Construction} Services 1.0 Centre-North Labour force 15.6 (millions) Participation rate(2) 43.2 Male 53.3 Female 33.8 Employment rate(3) 39.9 Male 50.6 Female 29.9 Employment 14.4 (millions) (100.0 per cent) Agriculture 0.7 (4.9) Industry 4.1 (24.4) Construction 1.0 (6.9) Services 8.6 (59.7) Self-employment 4.0 (millions) Agriculture 0.5 Industry} 0.9 Construction} Services 2.6 1. In 1997. 2 Labour force in per cent of working-age population (15-64). 3. Employment in per cent of working-age population (15-64). Source: Ministero del Tesoro , Quaderno strutturale dell' economia Italiana, May, p 49
Recent developments suggest that the important measures of labour market reform adopted in the early 1990s(72) have so far mainly borne fruit in the centre-north. Here, the rate of structural unemployment has stabilised under the effect of rising labour market flexibility. Atypical work contracts have grown in importance, labour has been used more flexibly as an input of production(73) (week-end work and a greater number of daily shifts), and geographical labour mobility has begun to rise from low levels. Moreover, the dispersion of regional unemployment rates within the centre-north has decreased (Table 33). Some signs of greater labour market flexibility are also visible in the unexpectedly marked nominal wage moderation from 1995.(74) The centre-north accounted for 76 per cent of Italy's GDP in 1997, for 90 per cent of exports, for 87 per cent of foreign tourist flows and for 72 per cent of employment. Its per capita income was about 65 per cent higher than in the south. The most notable weakness of labour markets in the centre-north is that female participation rates continue to be low by international comparison.
Within the overall bleak picture in the south, some hopeful signals have, nevertheless, recently become discernible.(75) The pace of gross and net firm creation in the south increased during 1997, rising above the national average, notably in the northern parts of the south, where new industrial districts have been established.(76) Youth unemployment has begun to decline from high levels. Such districts have been defined as an agglomeration of small and medium-sized firms which, through cultural affinity and networks of local institutions - both competitive and co-operative - tend to create and exploit external economies of scale.(77) Southern exports have shown greater dynamism in 1997 than those from the north, raising the share of southern exports in the national export total. Investment in the south has accelerated, including foreign direct investment, and following several years of steep decline, industrial employment in the south began to rise in 1997. This development continued into 1998. There is also some evidence of increased wage differentiation inside the south, partly induced by contracts between local authorities and social partners (patti territoriali and contratti d'area, 1997).
Table 33. Regional unemployment rates 1992 (October) 1996 1997 South 16.3 21.7 22.2 Abruzzo 7.6 9.6 9.6 Molise 7.9 16.7 16.5 Campania 177 255 25.8 Puglia 140 17.7 19.2 Basilicata 14.1 1.8 119.1 Calabria 18.5 25.2 24.3 Sicilia 18.7 23.6 24.3 Sardegna 16.7 21.0 20.9 Standard deviation 4.5 5.3 5.3 Coefficient of variation 0.3 0.3 0.3 Centre-North - 7.7 7.6 Piemonte - 8.3 8.6 Valle d'Aosta - 5.6 5.5 Lombardia 6.1 6.0 Trentino-Alto Adige 3.9 4.1 Veneto 5.6 5.3 Friuli-Venezia Giulia 7.1 7.0 Liguria - 11.7 11.4 Emilia-Romagna 5.6 6.0 Toscana 8.4 8.5 Umbria 10.2 9.1 Marche 6.5 7.4 Lazio 12.8 12.5 Standard deviation 2.7 2.5 Coefficient of variation 0.4 0.3 Source: G Bodo and G Viesti (1997), La Grande Svolta, II Mezzogiorno nell'Italia dagli anni novanta, Donzelli, p. 76; SVIMEZ (1998), Informazioni, January-March Table 34. Indicators of regional disparity(1) Data for the south in per cent of data for the centre-north Per capita income 56.4 Total labour costs(2) 77.3 Gross wages(2) 90.9 Output 32.3 Employment 39.1 Level of labour productivity in industry 80.6 Exports 10.4 1. In 1997. 2. Per employee in industry Source. SVIMEZ (1988), Informazioni, January - March; ISTAT (1998), Rapporto Annuale, La Situazione del Paese nel 1997; Ministero del Tesoro (1998), Documento di Programmazione Economico- Finanziaria, per gli anni 1999-2001, April, p 82; L.F Signorini and I. Visco (1997), L'economia italiana, il Mulino p 89
Progress in structural reform
The scattered signs of an economic revival in the south may owe something to spillover effects from buoyant conjunctural trends in the north. In a strengthening macroeconomic environment, some parts of the centre-north have suffered from growing labour shortages, rising traffic congestion (see Part III) and lack of space for firm creation. These saturation effects have naturally directed investment efforts towards the south.(78) However, underlying institutional reforms, including changes to the system of both public-sector and enterprise governance, seem to have had beneficial effects. The new electoral system of 1993-1995 has enhanced local autonomy, mayoral integrity and accountability, improving the quality of government at the local level.(79) Transfer cuts associated with the EU-imposed abolition of special assistance for the south in 1993(80) appears to have changed entrepreneurial attitudes, while prospects of early EMU membership have strengthened investors' confidence. Core-periphery models typically emphasise the importance of geo-economical factors within a given region and the related potential of positive contagion.(81) Coinciding with a shift in regional policies and more general progress in structural reform towards an emphasis on markets and local initiative, the signs of economic revival in some parts of the south may portend an easing of labour market disequilibrium over the medium run.
In addressing its major policy challenge, namely to bring the economy of the south closer to parity with the north, the government has emphasised a comprehensive and focused approach. As a first step, this has involved taking stock of and screening all existing incentives given by both central and local governments. This screening has begun to be carried out by the newly-created Treasury department (Dipartimento per le politiche di sviluppo e di coesione). Its main function is to co-ordinate development efforts made by central and local governments, the EU and the private sector. The department will be assisted by a new public entity for public companies which have already invested in the south. Its major functions would be to increase the role of private capital in southern investment projects (merchant bank, intermediation) and to diffuse information about southern investment opportunities (marketing).
Increasing wage and labour cost flexibility
Rise in atypical work contracts
Since the previous OECD Economic Survey of Italy was prepared, several steps have been taken to increase the flexibility of wage and labour costs. Many provisions of the labour agreement of September 1996 signed by the social partners and the government(82) were transcribed into law in June 1997. The use of atypical labour contracts has been stimulated by adjusting social security contributions and pension provisions for part-time work and by discontinuing the automatic transformation of fixed-term contracts into indefinite work contracts. Sanctions have been eased for non-observance of rules regarding the transformation of fixed-term contracts into permanent ones. And from January 1998 the establishment of private-employment and temporary work agencies has been allowed.
In response to these initiatives, the extension of non-traditional work contracts has risen sharply, albeit from low levels. Temporary work is more prevalent in the south than in the north, perhaps reflecting the greater incidence of the underground economy. The north makes greater use of part-time work. While the use of temporary-work contracts is still regulated by law, effective limits have been set by collective agreements. Such constraints, however, have diminished over time.(83) Exploiting the new scope for non-traditional forms of work has also been influenced by firing restrictions which, in effective terms, can be quite stringent in the case of individual dismissals (with uncertainty about the length of the judicial process).(84) Thus, overall, non-traditional forms of employment are still less important than in other European countries.
Small widening of wage and labour cost differentials from low levels
In line with the labour agreement of September 1996, social partners and local authorities in economically depressed regions have concluded special contracts (patti territoriali and contratti d'area) aimed at fostering job and firm creation. Under these schemes, covering 7 300 employees by mid-1998, employers undertake to stimulate investment and employment at the local level in return for a temporary derogation from national wage agreements and more flexible working arrangements. As a result, entry wages have fallen significantly relative to average emoluments. At the same time, non-wage labour costs for newly hired young persons have been reduced by 30 per cent over a 3-year period.
A more general cut in non-wage labour costs has come with the 1997-98 tax reform, which instituted IRAP, a new regional tax on business activity, which has replaced a variety of taxes and contributions, including the local income tax (ILOR), the tax on companies' net worth, municipal taxes and employers' contributions to the national health system (see Part II). When fully operational, IRAP is projected to reduce national labour costs by about 1 per cent. Labour intensive enterprises, which enjoyed little or no relief under the old regime of health contributions, are likely to benefit from larger cuts in labour costs. Until 2000, manufacturing firms in the south will benefit from a low effective IRAP rate.(85) The provisions of the new regional tax also give full tax deductibility for expenditure on apprentices. A deduction of 70 per cent is granted in the case of staff hired on work training contracts.(86) The 1998 tax reform also lowers the user cost of capital for firms which finance investments with their own capital or equity issues (see Chapter II). Overall, the tax reform is likely to strengthen employment.
A risk: the planned legislated introduction of a 35-hour working week
In March 1998, the government presented draft legislation reducing by 2001 the standard working week to 35 hours for firms with more than 15 employees and placing sanctions on the use of overtime. The legislation establishes a legal framework, leaving it up to the social partners to decide how the reduction in working hours would be implemented, allowing for conditions specific of firms and sectors. The government reserves the right to introduce amendments within two years of the approval of the law to remedy any distortions to which it might give rise. Even so, there is a risk of unit labour costs rising as a result of a reduced working week. The labour agreement for the Civil Service (Contratto dei ministeriali) of July 1998 cut weekly working hours from 36 to 35 for certain categories of civil servants. It also increased the flexibility of working time and the mobility of labour,(87) while giving each Ministry the right to make merit-based payments (decentralised wage contracts).
Derestricting the public labour market
Since the adoption of the 1997 framework law (Bassanini 1), two decrees have been issued, drawing a clear line between the responsibilities of politicians (ministers, mayors, local government councillors, chairmen and boards of directors of public bodies) and those of managers and civil servants and trade unions. Both decrees are based upon a management model borrowed from private enterprise, aimed at ending political interference in administrative activity.(88) Under the decree 80/98 based on Bassanini 1, the employment of top public managers is regulated by contract and general labour legislation, with the central government's new system of selecting, appointing and employing top managers serving as a benchmark for the public administration as a whole.
Reflecting reduced administrative constraints and the greater use of flexible forms of labour (fixed-term contracts, training contracts, and temporary employment and tele-work), senior managers who have been appointed under the new system have the autonomy of private-sector employers. The redeployment of labour from one government agency to another is governed by the same regulations which apply to the private sector. This implies that the principle of a specific job guaranteed for life is no longer maintained. The reform provides for increased mobility under two categories, the first resulting from the shift of administrative powers from the central government to the periphery; and the second implying the redeployment of personnel from overstaffed to understaffed administrations. Public managers are given only a fixed-term contract (running from 2 to 7 years), with dismissal ensuing in the event of incompetence or redundancy. The contracts are renewable. Managers' emoluments partly depend upon performance, and, from the autumn of 1998, cost savings, the difference between budget appropriations and outlays, can be reinvested in the same department. Funds set aside for incentive schemes total 2 per cent of the total public wage bill.
Accompanying the process of decentralising government functions and applying private labour rules in the public sector has been a change in collective bargaining within the public sector. In analogy with the labour accord of July 1993, contracts have begun to be negotiated at two levels, one being the national level for collective agreements applicable to sectors (ministries; regional and city governments; schools; health care agencies; State enterprises; universities; research institutes, etc.). ARAN represents the central government, regions as well as local authorities and agencies in collective bargaining. A second level of negotiation can take place in each body within a given sector, subject to guidelines set in sector-level contracts. The reform also introduces new rules regarding trade union representation, which is high and fragmented (there are 102 unions). In each government agency, a single body representing employees is elected from a list of candidates presented by the trade union associations. The civil service reform is expected to be fully implemented before the end of 1998.
The privatisation of employment conditions has also advanced in the public health sector, where local health units (Unita Sanitarie Locali, USLs), of which there are 228, have been transformed into companies. Their heads, endowed with managerial responsibilities, have fixed-term work contracts, with pay partly related to performance. The USLs are required to draw up their own budget, setting out targets and monitoring budget developments. Overall, better organisation in the health sector has slowed the rise in health spending. New reform measures introduced in 1998 include means-testing, a greater use of cost-sharing provisions and modified pricing policies for drugs.
Improvements in labour force skills and competencies
Until recently, Italy's education system has been marked by a low leaving age for compulsory schooling (14 years, the lowest with Turkey of all OECD countries) and large numbers of students opting out of secondary school and University. Moreover, the capacity of secondary schools and universities to provide technical training has been limited, adding to skill shortages in the private sector. As a result, Italy has come low internationally for the total number of degrees for those aged between 18 and 64. Responding to these weaknesses, the government has started a wide-ranging reform of school education, making school attendance compulsory from the ages of five to ! 5, thereby raising the minimum number of years at school from eight to ten. It also plans to take special action to reduce drop-outs from secondary schools, increasing teachers' training, tightening the standards of the esame di maturita and giving schools and universities greater autonomy in managing budgets and curricula (Autonomy law of December 1997).(89) The reform proposals also include independent quality checks of teachers, with new degree training requirements for those in primary schools.
Italy is also a country where the transition from education into the labour market is particularly difficult, as indicated by the level of the youth unemployment rate, which at close to 33 per cent in 1997 is significantly higher than the EU average. A particularly large fraction of labour market participants looking for their first job can be identified in the depressed Mezzogiorno. Implementing part of the labour agreement of September 1996,(90) the government in June and December 1997 increased the opportunities for training and apprenticeship contracts for young persons, with special provisions for the south ("Treu package" or Pacchetto Treu).
The "Treu package" eases regulations for new apprenticeship (nuovo apprendistato) and work-training contracts (contratto di formazione-lavoro) and sets incentives for on-the-job training (stages), temporary work via private agencies (lavoro interinale) and intra-regional labour mobility (assegni per la mobilita geografica). As an innovation, it introduces in public employment offices personalised and targeted counselling for young unemployed persons in the south. Regions and other local authorities will be responsible for the implementation of most of these measures.(91)
Increasing product market competition
Reducing the burden of regulation
Among major obstacles impeding the efficient functioning of product markets have been over-regulation and an organisation of public administration that insisted upon formal compliance rather than ex post assessment of results. Over time, laws and administrative rules have proliferated, leading to the creation of external technical bodies and greater fragmentation of public administration. The excessive number of laws and administrative acts has inevitably given rise to disputes, long planning delays, structural rigidities and uncertainties about the legal situation. The compliance costs for firms and citizens, measured by the number of days lost for contacts with the public administration, have been substantial, estimated at 1.2 per cent of GDP in 1996.
Reducing the "hidden administrative tax" had been the object of reform initiatives taken in 1993.(92) Under the framework law 59/97 (Bassanini I), adopted in March 1997, the approach towards improving the quality of both regulations and administrative-decision making has been broadened and deepened.(93) Three principles underlie the strategy of cutting back red tape: delegislation(94) is a transformation of legislative power, making procedures less rigid; simplification implies removing unnecessary administrative steps, thereby serving users more quickly and cutting administrative costs; and codification means conceiving a unified, consistent set of regulations. A detailed screening process identifies procedures which are in need of simplification. Such procedures are automatic candidates for "delegislation". Under legislation passed in 1997 the screening process will become a permanent feature of structural reform.(95)
In application of the above principles, about 100 procedures have so far been removed, including licensing requirements for simple service jobs, and 378 laws simplified. Many licences have been replaced by a notification requirement. Procedures for setting up new industrial plants have been simplified, partly through the creation of "one-stop shops" for business. These shops represent a single authority at local government level, responsible for issuing licences, subject to time limits, and receiving notifications.
Liberalisation of non-financial service sectors
One segment of the service sector due to be liberalised under the effect of simplified procedures is the retail sector. based upon the framework law 59/97 (Bassanini 1), the decree of March 1998 abolished city regulations for retail shops, including ceilings placed on the number of shops.(96) Under the new rules, which replace legislation dating from 1971, the categories of shops have been reduced from 14 to 2, the remaining distinction being one between food- and non-food stores. There are no longer restrictions governing the creation of non-food~shops with a surface of less than 250 square metres in towns with more than 10 000 inhabitants. Shops are now allowed to bundle goods. They can be opened for 13 hours per day within a time range from 6 a.m. to 10 p.m. (excluding Sundays). Sunday openings are restricted to 12 Sundays per year, including the December Sundays prior to Christmas. From March 1999, regions are required to submit plans for urban development and issue rules for opening up large shops. Until then, no large shop can be set up. Compared with other European countries, Italy has many small grocery shops and few hypermarkets.
In the telecommunications sector, the government in February 1998 granted national mobile telephony licences to Wind, a joint venture between the electricity company (ENEL), Deutsche Telekom and France Telecom. The fixed segment of the telephony market was also deregulated by assigning licences to two new companies with foreign participation, Albacom and Infostrada. Increased competition reduced costs of long-distance calls by 14 per cent and that of international calls by 17 per cent in February 1998. The regulatory authority for telecommunications, which is also responsible for the television sector, became operative in May 1998. In April 1998, parliament approved legislation to liberalise the electricity market, setting the stage for ENEL to be split into three divisions (production, transmission and distribution) in accordance with the EU electricity market directive. A further government initiative in this direction was taken in November 1998. Far-reaching reforms are also being prepared for the transport sector, notably the national railways. They are discussed in Part III. In February 1998, the postal company (Ente Poste) was transformed into a corporation (SPA) controlled by the Treasury. A five-year restructuring plan was recently submitted to the government aiming at restoring financial accountability, improving efficiency and widening the range of postal services.
Restructuring the banking sector
Italy's banking sector has long suffered from State dominance and its associated features of overstaffing, high labour costs and fragmentation. Inefficiencies were manifest in low profitability, a huge stock of bad loans, mostly concentrated in the south (Table 35), and large spreads between lending and deposit rates. In the south, non-performing bank loans in 1997 totalled L 8-9 trillion or half a per cent of GDP. However, over the past few years, the pressure to restore profitability has increased with the steep fall in market interest rates and the growing presence of foreign banks in Italy. In 1998, the acceptance of Italy as a founding member of EMU has further enlarged the exposure to foreign competition.
The response to keener competition has mainly taken the form of nominal wage moderation, accelerated privatisation, mergers and acquisitions and diversification. The new wage agreement for the banking sector (February 1998), has provided for a cut in labour costs of 8-9 per cent over a four-year period, the use of more flexible forms of employment, longer opening hours and the creation of a special fund to finance training and early retirement. While overstaffing in the banking sector is still estimated at about 27 000, restructuring has sent banking and insurance stocks to record heights in 1998. The spread between lending and deposit rates narrowed to 5 points in 1997, partly reflecting a reduced stock of non-performing loans (crediti divenuti inesigibili).(97)
Table 35. Bad loans by region(1) 1990 1991 1992 1993 1994 1995 1996 Italy 5.5 5.7 5.8 6.9 8.9 10.2 11.4 North-west 3.6 3.5 3.6 4.6 5.7 61 6.2 North-east 4.4 43 4.4 5.5 6.9 6.9 6.8 Centre 6.0 67 6.3 7.4 9.5 10.8 12.0 South 10.1 10.5 11.0 12.7 16.7 22.0 27.2 1. Bad loans as a percentage of total loans Source: P Morelli and G.B. Pittaluga (1998), "Le sofferenze bancarie: tendenze e previsioni", Centro di economia monetaria e finanziaria Paolo Baffi, Working Paper No. 121, March.
Highlights of privatisation in the banking sector have been the sale of Credito Italiano and Banca Commerciale Italiana (1993-94), Istituto Mobiliare Italiano (IMI, 1995-96), Banco di Napoli (1996), Banca di Roma(98) and Istituto Bancario San Paolo di Torino (1997). The ailing Banco di Napoli was sold to a syndicate composed of the privatised insurer INA (the insurance company) and the almost entirely state-owned Banca Nazionale del Lavoro (BNL). Tax incentives have also been introduced to speed up the sale of public banks controlled by foundations (fondazione, March 1998). Owned by regional and municipal authorities, the foundations were established in 1990, when public-sector banks were changed into joint stock corporations. According to projections of the Bank of Italy, by the end of 1998 the state's presence will have shrunk to 25 per cent of the banking system, compared with 68 per cent at the end of 1992.
A wave of mergers and acquisitions coincided with accelerated privatisation. Ambrosiano Veneto, a private bank, and Cassa di Risparmio delle Province Lombarde (CARIPLO), a savings bank controlled by a public foundation (fondazione), merged to form Banca Intesa (1997). In the wake of this merger, CARIPLO was privatised. Thereafter, the privatised Istituto Bancario San Paolo di Torino, the country's largest commercial bank, merged with the privatised IMI, a bank specialising in medium- and long-term lending. The privatised Credito Italiano intends to merge with three northern savings banks to constitute another strong banking group (Unicredito). Partly reflecting mergers, the number of Italian banks has fallen sharply, while the use of the banking network to sell insurance policies, mostly life insurance, multiplied (diversification). At the same time, foreign banks, mainly building societies and merchant banks, have enlarged their presence in the Italian market.
Expanding the private capital market
Italy's private capital market has been smaller and more concentrated than that other major countries. Out of a population of 2 000 potentially eligible companies, only 200 have been listed at the stock exchange, and single majority stakes have, until recently, accounted for about 60 per cent of total stock market capitalisation.(99) In July 1998, the capitalisation of the stock market was still well below the average of the main continental European stock markets. On the demand side, inadequate disclosure requirements, insider trading and neglect of minority shareholders' rights discouraged financial investments in stocks. On the supply side, small and medium-sized companies, the backbone of Italy's economy, have traditionally shied away from stock market listing (given the immobility of their ownership structure). Securitisation of capital has been hampered by the inefficiency of the stock market, especially with respect to the pricing of new offers, fiscal provisions, and potential conflicts of interest between controlling and other shareholders.(100)
From a financial market perspective, prospects of rapidly declining public debt are expected to enlarge portfolio shifts, stimulating the demand for equities, corporate bonds and other financial assets (see Part II). The prospective switch in the allocation of savings is set to take place in the context of keener competition between financial markets, a consequence of EMU and globalisation. The need for a broad and efficient market for financial services has thus increased. Several reform measures were taken in the early 1990s to invigorate the stock market and make it more effective. These included the 1991 Stock Market Law, which changed the legal framework for the organisation and functioning of the securities markets and created a new legal entity, the multi-functional investment firm (SIM); the 1992 and 1994 Laws on take-over bids (Opas), which strengthened safeguards for minority shareholders and made bids compulsory; the 1993 Banking Law, which removed operational and maturity restrictions placed on credit institutions;(101) and several initiatives to establish private pension funds (1993, 1995, 1996 and 1997).
The institutional framework of capital markets has evolved further with the transformation of the stock exchange and securities markets from public institutions into corporations and the new law on financial markets and investment services (consolidated law on financial intermediation, 58/98). The sale of the shares of Borsa Italiana S.p.A. took place in September 1997,(102) banks absorbing 63 per cent of the shares, investment firms 29 per cent and institutional investors the remaining 8 per cent. The new law on financial intermediation of February 1998 has derestricted the managed savings industry(103) and simplified procedures for take-over bids. It has also strengthened the rights of minority shareholders and, in anticipation of the establishment of the European Central Bank, made the Bank of Italy responsible for supervising all markets relevant for monetary policy, including the screen-based wholesale markets in government securities and the interbank deposit markets. The Ministry of the Treasury will be responsible for the definition of investment services and financial instruments in line with EU legislation.
These institutional changes have been accompanied by the 1997-98 tax reform, which, as part of efforts to promote securitisation, has reduced the corporate income tax rate for new issues of share capital (see Part II). The preferential rate for corporate income may also facilitate the transformation of companies' contingency funds for severance payments into equities owned by employees. These funds have been used as a source of self-finance. With effect from July 1998, the tax reform also modified the taxation of income from capital. It incorporated into the tax base capital gains derived from trading in derivatives, taxing capital gains on an accrual basis and making it possible to pay the income tax on the combined gain of the portfolio value (as distinct from its individual components).(104) Accompanying these measures has been the formal opening in July 1998 of a strips market, which is primarily used by pension funds. A strips market separates trading of registered interest and principal securities.(105) Legislation is also under discussion aimed at stimulating securitisation through sales of asset-backed bonds. Under the bill, banks would be free to sell non-performing loans in asset-backed markets and benefit from an exemption of paying withholding taxes. The main beneficiaries of the latter measure would be southern banks saddled with large amounts of bad debt.
Increasing the pace of privatisation
Over the past few years, issues of equity capital were dominated by sales of State companies. In the period 1992 to 1997, privatisation receipts, i.e. proceeds going to both the Treasury and IRI, the major state holding company, totalled L 118 trillion (Table 36). In line with OECD recommendations, the tempo of privatisation gathered strong momentum in 1997, when privatisation revenues surged by L 38 trillion, or nearly 2 per cent of GDP. This makes Italy one of the largest privatisers in the OECD in 1997. In some instances, though, the State has retained a golden share, prolonging State presence in the telecommunications and energy sectors. The special powers associated with the golden share have been found to violate competition rules and to comply with the EU request of July 1998(106) to terminate this practice the law is to be changed. In addition to banks (see above) highlights of privatisations in 1997 included sales of stakes in the energy conglomerate (ENI), the telecoms utility (Telecom Italia) and SEAT. In 1998, the fourth tranche of ENI has been sold under public offer, which at L 12 trillion or 0.6 per cent of GDP has been one of the largest operations mounted in Italy. In the process, the Treasury's stake in ENI has been reduced to less than 51 per cent of total share capital.
Under the medium-term economic plan of April 1998,(107) the government plans to sell its 85 per cent stake in the Banca Nazionale del Lavoro as well as its remaining shareholdings in the Banco di Napoli, IMI (the merchant bank), INA (the insurance company) and Telecom Italia (the telecoms utility). IRI, the state holding company, intends to offer its 87 per cent stake in Autostrade SpA (the highway concessionaire), Altitalia (the national airlines), Finmare (the ferry company) and the remainder of its stake in the Rome airport services company and parts of the defence and engineering group (Finmeccanica). In August 1997, the EU approved [TABULAR DATA FOR TABLE 36 OMITTED] the government's proposal to extend the Autostrade S.p.A. licence to run the existing motorway network for 20 years to 2018. However, licences for any future motorway projects will have to be awarded by competitive tender.(108) The privatisation of the electricity company (ENEL) is absent from the 1998 privatisation plan, even though the regulatory authority for electricity (Autorita per l'energia elettrica e il gas created in June 1996) began operations in April 1997. Moreover, the sale of the State's remaining stake in the Rome Airport Services Company has been delayed as a result of negotiations on the opening of Milan's second airport (Malpensa) as an international hub (see Part III).
Alongside State privatisations, sales of municipality assets have begun to be made, reflecting cuts in state transfers to local authorities as well as simplified procedures for transforming aziende speciali into corporations (Law 127/97, Bassanini 2). In 1997, the British Airport Authority, which also runs London's Heathrow Airport, bought 70 per cent of the Naples airport. Milan has begun to prepare sales of its municipal enterprises, including transport, airport, electricity production, waste management and street cleaning companies.(109)
Continued surveillance by the Anti-trust Authority
In its seventh year of activity, the Anti-trust Authority (Autorita Garante della Concorrenza e del Mercato) continued to reinforce competitive conditions in product markets directly through decisions (Table 37) and indirectly through investigations, partly conducted in collaboration with the Bank of Italy. The year 1997 saw evidence of horizontal agreements among producers of packaging for food and compact discs, drugs sold by pharmacies and explosives. The abuse of a dominant position was particularly strong in two segments of the financial service sector (assistance to crisis-ridden firms and consultation services) where Mediobanca, Italy's only private merchant bank until the reform of the banking law in 1993, still holds a dominant position.
Applying its competition advocacy powers, the Authority also issued reports about laws and regulations which contradict competition principles. Special attention has been devoted to network industries (industrie a rete) or previous public monopolies (gas, electricity and telecommunications), which have begun to operate in a new regulatory framework. The Authority detected a lack of competitive conditions in each of these industries.(110) In its first annual report, the regulatory authority for the electricity and gas sector presented evidence of a [TABULAR DATA FOR TABLE 37 OMITTED] distorted tariff structure and the related overpricing for household users of gas and electricity.(111)
Assessment and recommendations
Italy's labour market continues to be plagued by deep segmentation, the central-northern regions booming and the south deteriorating. The evidence of rising structural unemployment at the aggregate level mainly reflects adverse developments in the south. In the centre-north, more flexible modes of production (notably shift and Sunday work) have spread, raising the incidence of nonstandard work from already high levels. Atypical work contracts have also become more important, and labour mobility is high. On the other hand, there is room for improving labour markets in the centre-north by raising female participation rates from low levels via larger supplies of part-time jobs. More importantly, the school and training system needs improving, school attendance being low and dropout rates high. By contrast, the south has been caught in a bad "equilibrium" marked by insufficient wage differentiation, lack of infrastructure, low quality of public services and the presence of organised crime. There is some circumstantial evidence that trends in southern job and firm creation have recently begun to strengthen in response to greater political stability provided by the new system for local elections, saturation effects in the north and labour-market measures taken in the wake of the labour agreement of September 1996. But within the south, signs of relative improvement are mainly concentrated in the northern part of the south and bringing the economy of the south closer to parity with the north will remain the major policy challenge in Italy for many years to come.
The general progress made towards market liberalisation and decentralisation should help in this regard. In the face of high unemployment and widespread inefficiencies in the public sector, the government in 1996-1998 laid the legislative ground for a market-oriented structural reform, which, in terms of width and depth, has no precedent in Italy's recent history. based upon decentralisation of government powers, downsizing of the public sector and liberalisation of service sectors, the reform programme also includes tax reform and an overhaul of the public administration. The thrust of the tax reform, which lowers direct taxation, increases indirect taxation and enlarges the tax autonomy of regions, is in accordance with the-tax recommendations contained in the OECD lobs Study of 1994(112) (Box 5). The reform was fully implemented by mid-1998. Other reform elements (liberalisation and reform of public administration) will be phased in gradually, the implementation process ending in 2001, the end-year of the 3-year plan (DPEF) of April 1998.
[TABULAR DATA FOR BOX 5 OMITTED]
The issue of a successful transfer of powers to the regions is intimately linked to the speed and quality of the reform of public administration. Its overhaul (Bassanini reform), combining the decentralisation of state powers with the downsizing of the public sector as a whole, implies a sharp contraction of the central government and the number of ministries. The associated rise in de jure and de facto labour mobility has naturally met with strong resistance of state employees, slowing down the implementation of the reform. The application of private-sector principles in the reorganisation of the public sector is welcome (fixed-term labour contracts for newly appointed general managers; performance-related pay; a top-down approach and the creation of cost centres, etc.). But the marketability of the reform could be enhanced by making the reform process more transparent for citizens and all parties involved (issues of reform calendars, progress reports and press releases), by targeted training of managers, and by accelerating the streamlining of administrative procedures.
The liberalisation of several service sectors (including retail, transport, telecommunications, managed savings and the stock market) is an important example of the benefits of deregulation, lowering service input costs, enhancing consumer welfare and making capital markets more efficient. In some instances, though, the reform is either absent or narrow. The reform of the retail sector includes a freeze (until March 1999) on the opening of large shops, and the reform of the trucking industry contains an undue tax privilege (see Part III).
The devolution of a wide range of powers to local governments, guided by the principle of subsidiarity, should with time improve the quality of public services. Reducing red tape, corruption and tax evasion as well as the improvement of public employment offices and the infrastructure should generate a business climate conducive to assisting firm and job creation in the south. Two caveats, however, are in order, one being that incomplete implementation may dilute the reform impact, as has often been the case in Italy. The other caveat concerns the possibility that regions may not be equally prepared to exercise the new executive powers in an adequate way (this concerns in particular tax administration, transportation, environment, training and education).
Reaching the government's employment target (a rise in employment of 600 000 over the three years to 2001) also depends upon the pace of deregulating the labour market itself. While this market shows signs of greater labour market flexibility (with an increased proportion of atypical work, resumption of labour mobility and better use of labour inputs), in some domains the institutional reform has been painstakingly slow. Examples of this include education, training, the modernisation of public employment offices and the establishment of private employment agencies. Wage differentials, though widening somewhat from low levels, continue to be insensitive to productivity differentials and cyclical conditions. Moreover, the planned introduction of the 35-hour week through law in 2001 poses a risk of higher unit labour costs, an undesirable outcome, especially considering keener competition from EMU participants and low-labour cost countries. Thus, labour market reform per se needs to be adapted and speeded up.
1. The VAT increase added an estimated 0.5 point to the rise in the consumer-price index.
2. S. Fabiani, A. Locarno, G. Oneto and P. Sestito (1998), "Risultati e problemi di un quinquennio di politica dei redditi: una prima valutazione quantitativa", Banca d'Italia, Temi di discussione No. 329, March.
3. Banca d'Italia (1998a), Relazione annuale, Considerazioni finali del Governatore, p. 15.
4. See A. Fazio (1998), Italy and Europe in a world global finance, Address to the conference organised by AIOTE, ASSOBAT, ATIC, FOREX, AIAF, Naples, 24 January 1998. For a recent empirical analysis of the transmission of monetary policy to inflation in Italy, see also E. Gaiotti, A. Gavosto and G. Grande (1997), "Inflation and monetary policy in Italy: some recent evidence", Banca d'Italia, Temi di discussione, No. 310, July.
5. The discount rate and the rate on fixed-term advances define a "corridor" for money market rates under normal conditions.
6. For a recent discussion of the role which expectations may have played in triggering the reduction of long-term interest rate differential between EU countries, see I. Angeloni and R. Violi, (1997), "Long-term interest rate convergence in Europe and the probability of EMU", Banca d'Italia, Temi di discussione No. 322, November.
7. Banca d'Italia (1998b), Economic Bulletin, February, p. 46.
8. Over the summer of 1998, the long-term interest rate differential vis-a-vis Germany widened temporarily reflecting turbulence on international financial markets, while also under the influence of technical factors, stimulating the demand for German bonds.
9. Cross-country estimates of the responsiveness of the banking sector to monetary policy changes are given in C. Cottarelli and C. Kourelis (1994), "Financial structure, bank lending rates and the transmission mechanism of monetary policy", IMF Staff Papers, December.
10. See for a discussion P. Morelli and G.B. Pittaluga (1998), "Le sofferenze bancarie: tendenze e previsioni", Centro di economia monetaria e finanziaria Paolo Baffi, Working Paper No. 121, March.
11. The original 1997 budget embodied a fiscal adjustment of L 46.5 trillion relative to trend, of which 28 trillion was in the form of additional revenue. At the beginning of the year, slower than expected output growth put the state sector deficit target at risk, leading to the adoption of supplementary measures amounting to around L 16 trillion at the end of March 1997. Accounting changes led to a further reduction in net borrowing of around L 16 trillion.
12. These receipts are expected in conjunction with the phasing-in of new rules governing personal and corporate income taxation and the revision of the tax rates for vehicles. The revenue-yielding effects of the raise of the withholding tax rate (from 19 to 20 per cent) are estimated to be L 0.8 trillion.
13. According to ISPE, real gross public investment of Italy fell by close to 23 per cent between the year 1990 and 1997. See Istituto di studi per la politica economica (1998), "I conti pubblici nel 1997 e 1998 e le loro prospettive negli anni a venire", Documenti ufficiali, No. 3, 1998. For a wide discussion of the requirements for stronger public investment in Italy given the context of fiscal adjustment, see also F. Modigliani and F. Padoa Schioppa Kostoris (1998), Sostenibilita e solvibilita del debito pubblico in Italia, Bologna, Il Mulino.
14. A less favourable scenario assuming a higher discrepancy between cost of the debt and nominal GDP growth (at 6 per cent and 3.5 per cent, respectively), implies that the debt ratio would fall below 60 per cent by 2018.
15. Residui passivi are the difference between expenditure appropriations and cash outlays. In recent years, the relatively pronounced cut in cash outlays has led to a build-up of residui passivi which at the end of 1997 totalled 9 per cent of GDP.
16. During the 1980s, the growing generosity of transfer provisions made it more difficult to reduce the budget deficit. See N. Sartor (1998), II risanamento mancato, Carocci Editore and S. Rossi, La politica economica italiana 1968-1998, Bari, Editori Laterza.
17. OECD (1996), Economic Survey of Italy, pp. 49-55; OECD (1997a), Economic Survey of Italy, pp. 82-85.
18. Ministero del Tesoro (1998), Italy's convergence towards EMU, pp. 27-29.
19. Istituto Nazionale di Statistica (1998a), Rapporto annuale, la situazione del paese nel 1997, pp. 87-90.
20. L. Pennacchi (1997), Lo stato sociale del futuro, Roma, Donzelli; M.V. Rostagno and F. Utili (1998), "The Italian social protection system: the poverty of welfare", IMF Working Paper, May; Commissione per l'analisi delle compatibilita macroeconomiche della spesa sociale (1997), Relazione finale, February.
21. For details see ISTAT (1998a), op. cit., pp. 303-305; OECD (1996), op. cit., pp. 70-71.
22. Law 59/1997 provides a framework for three inter-related reforms: the decentralisation of government functions, the reform of the public administration and the simplification of administrative procedures.
23. The devolution process is different from that of the 1970s, when the central government waived its jurisdiction over specified functions. See F. Bassanini (1998), "Overview of administrative reform and implementation in Italy: organisation, personnel, procedures and delivery of public services" (unpublished draft), p. 4.
24. Ministero dei Trasporti e della Navigazione, Ministero dei Lavori Pubblici, Ministero dell' Ambiente (1998), Conferenza Nazionale Trasporti, July, p. 22.
25. The kickback scandal, which broke in 1992, revealed widespread corruption in almost every area of public life, linking political parties, local authorities and business. International Monetary Fund and World Bank (1998), Finance and Development, March, p. 8. The Economist Intelligence Unit (1997), Italy, p. 6.
26. ISTAT (1998b), La vita quotidiana nel 1996, pp. 65-83.
27. J. Preston and C. Nash (1994), "European railway comparisons and the future of RENFE", FEDEA Working Paper 94-09, p. 18.
28. Ministero dei Trasporti e della Navigazione (1997), I transporti in Italia, p. 108.
29. Ministero del Tesoro, Commissione tecnica per la spesa pubblica (1998), Controllo della spesa e processo di risanamento della finanza pubblica italiana, March, p. 60.
30. La Repubblica, Affari & Finanza, 30 March 1998, p. 7.
31. Ferrovie dello Stato (1997), Annuario statistico 1996, p. 11.
32. By stimulating economies of scope, intermodal transport gives room for price reductions.
33. Between 1991 and 1997, train drivers' pay rose by 41 per cent and consumer prices by 27 per cent.
34. OECD (1998), Railways: Structure, regulation and competition policy, p. 145.
35. Derailments and train accidents increased in the first four months of 1998, 15 accidents being responsible for more than 100 injured persons and one dead. Growing train insecurity has fuelled public discontent.
36. According to FS figures, in 1996 FS revenues from passenger fares totalled L 3.5 trillion. The average journey length per passenger was 107 kilometres. In the same year, revenues from freight transport amounted to L 1.3 trillion. The average journey length per tonne was 305 kilometres, see FS (1997), op. cit.
37. Ministero dei Trasporti e della Navigazione (1997), 0p. cit., p. 96.
38. There were about 1 100 enterprises in 1996 providing local transport services. The greater part of these (about two-thirds) provided extra-urban transport and nearly one fifth urban transportation. The remaining firms performed both types of services. Virtually all local public traffic is based on rubber wheels, tramways and subways having a minute share. More than half of local transportation firms are located in the south (including the islands), one-third in the north and the remainder in the central regions. The production structure is highly dualistic, with about 60 per cent of enterprises employing less than 10 employees and 11 per cent of the firms having a workforce above 100 persons. The grandi aziende speciali, most of which provide urban transport services, are all owned by local authorities and belong to Federtrasporti, the association of public transportation companies. Their employees accounted for 55 per cent of total employment in 1995 and for 51 per cent of the passenger volume in local transportation. The other companies engaged in extra-urban transportation belong to Anac.
39. In 1996 airports used for civilian purposes numbered around a hundred, a comparatively large number by OECD standards even after scaling for the size of the country. About half of these were airports assigned to serving the national and international commercial air commuters.
40. Autorita Garante della Concorrenza e del Mercato (1997), Concorrenza e efficienza nel settore aeroportuale, p. 26. There are seven of these airports in the UK and six in France.
41. In other towns, e.g. Milan and Turin, municipalities are majority shareholders of airports.
42. Alitalia is a joint stock company wholly owned by IRI. Since December 1996, Alitalia has been at the helm of a group of 12 companies whose activities extend from air- and airport services to tourist, computer, investment and insurance services
43. G. Nicoletti (1998), "Concorrenza ed efficienza nel settore aeroportuale", Autorita Garante della Concorrenza e dei Mercato, Temi e Problemi No. 9; Il Sole 24 Ore, 21 October 1998.
44. Ministero dei Trasporti e della Navigazione (1997), op. cit., p. 138.
45. Ministero dei Trasporti e della Navigazione (1997), op. cit., p. 185.
46. Europe's first toll motorway was opened in Italy in 1928.
47. OECD (1991), OECD Economic Survey of Italy, p. 64.
48. OECD (1991), op. cit., p. 61.
49. Ministero del Tesoro, Commissione tecnica per la spesae pubblica (1998), Controllo della spesa e processo di risanamento della finanza pubblica italiana, p. 57-61.
50. OECD (1994), Environmental performance review of Italy, p. 128.
51. OECD (1994), op. cit., p. 128.
52. Ministero dei Trasporti e della Navigazione, Ministero dei Lavori Pubblici, Ministero dell' Ambiente (1998), op. cit., July, p. 35.
53. OECD (1994), op. cit. p. 129 and Ministero dell'ambiente (1997), Relazione sullo stato dell'ambiente, p. 242.
54. Ministero dei Trasporti e della Navigazione, Ministero dei Lavori Pubblici, Ministero dell' Ambiente (1998), op. cit., p. 40.
55. Autorita garante della concorrenza e dei mercato (1997), Indagine conoscitiva di natura generale sui servizi portuali.
56. Fees for using the railway network are planned to have a fixed component (35 per cent) and a variable one (65 per cent). Variable user charges may depend upon three parameters: speed of the train, traffic density and use of infrastructure (Il Sole 24 Ore, 31 July 1998).
57. The Prodi initiative of January 1997 also called on the state railway company to draw up a medium-term business plan covering the period 1997 to 2001. Finalised in September 1997, the plan embodies further job cuts and a programme of railway investment totalling L 12.8 trillion, or 0.5 per cent of GDP. Of this amount, L 5.8 trillion are scheduled to be spent on upgrading the infrastructure and the rolling stock, L 5 trillion on extending the network of high-speed trains (including freight trains) and the remainder (L 2 trillion) on safety and efficiency. Investment spending will be financed out of government funds, taking the form of increases in the FS capital share and, to a smaller extent, by private capital. in February 1998, a multi-annual labour contract was signed, freezing FS wages over a 3 1/2-year period. From 2001, there will be only one driver in FS trains, aligning labour inputs on those of other European railways.
58. The national transport fund (Fondo nazionale dei trasporti), which had channelled transportation funds from the state to the regions, was abolished in 1995. Since then, regional transport spending has been frozen at the 1995 level, and regions have received revenues from special excise duties on petrol.
59. Legislative Decree 422/97, December 1997.
60. This view has been taken by the Anti-trust Authority in early 1998.
61. Ministero dei Tesoro (1998), Documento di programmazione economico-finanziaria per gli anni 1999-2001.
62. Pollution from cars and (especially) from trucks is more important than that from trains. At the same time, the construction of railway links often alters the landscape, arousing opposition from environmentalists.
63. ECMT (1998), Efficient transport for Europe, Policies for Internalisation of External Costs.
64. M. Ponti (1998), "Sui costi d'esercizio la tassa della politica", Il Sole 24 Ore, 10 August.
65. Ministero dei Trasporti e della Navigazione (1998), op. cit., pp. 31-32.
66. T. Andersson and P. Hasson (1998), "Why integrated transport systems?" OECD Observer, April-May, p. 27.
67. Structural unemployment data are based upon estimates of the non-accelerating wage rate of unemployment (NAWRU). See OECD (1998), Economic Outlook 64, December.
68. The methodological changes introduced in October 1992 included an extension of the list of branches of economic activity, a more detailed questionnaire and a redefinition of "job seekers", counting as unemployed persons only those aged more than 15 who were available for work and took at least one initiative to find a job in the 30 days preceding the quarterly labour force survey.
69. The alignment on ILO procedures in October 1992 showed that Italy's unemployment had been grossly overstated in the past and that the downward statistical revision for the south was particularly large.
70. L.F. Signorini and I. Visco (1997), L'economia italiana, Il Mulino, p. 89.
71. R. Faini, A. Falzoni, M. Galeotti, R. Helg and A. Turrini (1998), "Importing jobs or exporting firms? A close look at the labour market implications of Italy's trade and foreign direct investment flows", Universita of Brescia, p. 18 and p. 32.
72. Highlights of labour market reform in the early 1990s included the abolition of the job allocation scheme (July 1991); the removal of the wage indexation scheme (scala mobile, July 1992, 46 years after its introduction); the establishment of a two-tier wage bargaining system (July 1993), which made nominal wage growth more responsive to ex-ante inflation and changes in productivity and profits at the firm level (the agreement is currently under review); the alignment of employment conditions in the civil service sector with those prevailing in the private sector (1993/94); and the labour agreement of September 1996, aimed at stimulating the use of non-standard or atypical work contracts, decentralising public employment services and creating private employment agencies for temporary jobs. Derestriction of goods and services markets, based upon new legislation, interventions of the Anti-trust Authority (Autorita Garante della Concorrenza e del Mercato) and large privatisations accompanied labour market reform. For further details of the reform process see OECD (1996), op. cit., pp. 59-85 and OECD (1997a), op. cit., pp. 124-136.
73. Banca d'Italia (1998c), Relazione annuale 1997, p. 103.
74. Nominal wage growth has stayed significantly below levels predicted by wage equations. See OECD (1997b), Employment Outlook, July, p. 16.
75. Ministero del Tesoro (1998), op. cit., April, pp. 84-88.
76. S. Fabiani and G. Pellegrini (1997), "Education, infrastructure, geography and growth: an empirical analysis of the development of Italian Provinces", Banca d'Italia, Temi di discussione, No. 323, p. 41.
77. S. Fabiani and G. Pellegrini (1997), op. cit., p. 17.
78. A. Pozzolo (1998), "Research and development, regional spillovers and the location of economic activities", Banca d'Italia, Temi di discussione No. 331, March, p. 30.
79. F. Bassanini (1998), op. cit., p. 2. There are three tiers of government below the State level, regional councils, provinces and municipalities. Since June 1993 (Laws 142/90 and 81/93), the mayor (sindaco) of towns and cities over 15 000 inhabitants has been elected by two rounds of direct elections. If no candidate gets over 50 per cent in the first round, a second round is held between the front-runners. The victorious mayor can determine 60 per cent of the seats in his council, the remainder being allocated according to the distribution of the vote among other parties. The new system has introduced greater stability into local politics. As regards regions, the new electoral system introduced in February 1995 provides for the election of 80 per cent of the legislative council (consiglio regionale) according to proportional representation and 20 per cent with a simple majority. Regional elections take place every 5 years.
80. "Extraordinary" intervention in favour of the South which terminated in 1993 was replaced by support based upon common nation-wide criteria in accordance with EU rules. For details see OECD (1996), op. cit., p. 83.
81. S. Fabiani and G. Pellegrini (1997), op. cit., p. 18.
82. For details see OECD (1997a), op. cit., pp. 125-131.
83. Banca d'Italia (1998c), op. cit., p. 105.
84. E.S. Prasad and F.Utili (1998), "The Italian labour market: stylized facts, institutions and directions for reform", IMF Working Paper, April, p. 40.
85. Confindustria (1998), Nota dal C.S.C., 18 June.
86. Banca d'Italia (1998b), op. cit., pp. 14-21.
87. Opening hours for museums and other public services have been lengthened.
88. F. Bassanini (1998), op. cit., p. 8.
89. Under the old school system, attendance has been compulsory between ages of 6 and 14 (scuola elementare, 6 to 11 and scuola media, up to 14), the leaving age being the lowest, along with Turkey, of all OECD countries. Voluntary higher education (scuole secondarie superiori, 14 to 18) has been divided into several categories, many of them, such as scuole professionali, job-oriented.
90. OECD (1997a), op. cit., pp. 125-128.
91. Ministero del Lavoro (1998), "Employment Action Plan".
92. OECD (1997a), op. cit., pp. 101-102.
93. Autorita Garante della Concorrenza e del Mercato (1998), Relazione annuale sull'attivita svolta, April, p. 8.
94. Delegislation is the shifting from primary to secondary legislation, rules of laws being replaced by rules of regulations.
95. Law 59/97 requires the government to present to Parliament a bill each year, setting out the programme for further simplification.
96. Excluded from the new legislation are bars and restaurants governed by a law of 1991, as well as the petrol distribution sector.
97. Banca d'italia (1998a), op. cit., p. 32.
98. IRI, the state's major holding company, has retained a stake of 22 per cent in Banca di Roma in the form of warrants which may be taken up by private investors.
99. OECD (1995), Economic Survey of Italy, pp. 59-60.
100. OECD (1995), op. cit., pp. 106-107.
101. For details see OECD (1995), op. cit., pp. 52-53.
102. Banca d'Italia (1998b), op. cit., p. 66-73.
103. Under the draft legislation, pension and investment funds are given the right to provide services for both individual and collective portfolio management. In contrast, investment firms, banks and trust companies can only render services for individual portfolio management.
104. Banca d'Italia (1998b), op. cit., p. 19.
105. Coupon stripping is the process of separating the interest income stream from the principal of a bond.
106. Il Sole 24 Ore, 30 July 1998.
107. Ministero del Tesoro (1998), op. cit., p. 73.
108. The Financial Times, 11 August 1998.
109. The Financial Times, 13 May 1998.
110. Autorita Garante della Concorrenza e del Mercato (1998), op. cit., pp. 31-32; La Repubblica, Affari & Finanza, 29 June 1998, p. 6.
111. La Repubblica, 18 June 1998.
112. OECD (1998), The OECD Jobs Study, pp 239-259.
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|Title Annotation:||Italy; includes related articles|
|Publication:||OECD Economic Surveys - Italy|
|Date:||Dec 1, 1998|
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