7 August 2012. PenzaNews. Faced with a deep recession, Italy is experiencing serious economic difficulties. The government headed by Prime Minister Mario Monti has developed and launched a series of programs aimed at cutting expenditure. According to the government, spending cuts for 2012 will total 2,5 billion euro, for 2013 —10.5 billion euro, and for 2014 — 11 billion euro. However, it is going to take a lot more than just a bailout to fix what ails the Italian economy. This is the opinion expressed by Adriano Marchese, a contributor to Canadian Intelligence Corporation Geopolitical Monitor, in the article “Italy: The Long Road of Reform.”

© PenzaNewsBuy the photo

“Euro debt crisis is only one of several deeper issues that are eroding the core of Italy’s economy, society and politics. The Italian system– from its tax, labor, and corporate laws to its pensions and benefit plans– needs to be reformed,” the article begins to say.

According to the researcher, the Italian economy is in danger; however, it is not yet terminal.

“Political reform and progress has been all but halted by entrenched interest groups, widespread corruption continues to weigh down an already sluggish bureaucracy, and organized crime has still not been pushed out of the political process. All of this takes place against the backdrop of a complacent society which has been coddled with benefits, government aid, and exaggerated employee protection rights that in turn cheat the system and their employers,” Adriano Marchese stated.

He reminded that Prime Minister Monti had made progress with long-overdue labor reforms that overhaul the law governing the hiring and firing of employees. However, this victory, from the analyst’s point of view, is bittersweet, as “the final product was heavily diluted as a result of pressure from his ruling coalition, so much so that it barely addresses the core issues at hand.”

“The result has been a political victory on paper, but without the substance to make real change,” Adriano Marchese emphasized and added that labor regulation was just one aspect of a wider problem.

“The Italian economy is held back by old, archaic laws that make business difficult and hiring expensive. The government tries to compensate for this poor productivity by coddling inefficient companies to satisfy unions, workers and consumer demand. Institutionalized mistrust of competition has further hurt the economy with grossly high prices and chronic undersupply,” the article says.

According to him, Italy’s overall growth prospects suffer when industry is discouraged from growing past the stage of small cottage production.

“Imposing higher taxation and draconian hiring rules make business growth a burdensome endeavor that is often not worth the cost. These small businesses constitute over 50% of the Italian economy but economies of scales are rare in Italy,” Adriano Marchese explained and added that it made Italian products less competitive in global markets.

Moreover, in his opinion, Italy is further encumbered by a sluggish and backlogged legal system.

“The inefficiency of Italian regulations creates dependence on the judicial system for solution; and it’s not uncommon for simple legal procedures in Italy to take years to settle. Today, landlords cannot evict tenants or businesses without legal recourse, even armed with the justification of missed lease and rent payments,” he emphasized.

According to the analyst, the Italian income tax system is also archaic.

“Annual taxes are paid on what was contractually agreed rather than what was actually earned. It allows for people to pocket differences, or conversely, pay out more than they made that year. It has driven honest people to skullduggery, cash deals to avoid this burdensome tax system altogether,” Adriano Marchese stated.

In his opinion, dealing with the country’s bureaucracy is also a challenging task.

“Applications for licenses, visas, and citizenship documents are all processed at a glacial pace. In addition, government offices often have ambiguous authority, making for a process that is tediously circuitous,” he explained and stressed that these bureaucratic requirements bog down the pace of business and increase costs over the course of unpredictable wait times.

Furthermore, according to Adriano Marchese, from these overarching problems stem the small, innumerable issues that drive the country into a state of paralysis.

“Together, they form the environment in which Italy finds itself today: indebted, on the verge of crisis and a hostage to itself. The result is low foreign direct investment, climbing rates of unemployment and uncompetitive industries,” he stated.

According to him, fixing the Italian state is a monumental endeavor and, first, corruption has to be stomped out at all levels.

“This would put an end to black market deals, tax evasion, political graft, and wasted public money. Moreover, it would help to reduce the influence of organized crime on the political process,” the observer believes.

From his point of view, taxes need to be reduced to encourage businesses to grow and expand while simultaneously discouraging cheating and tax evasion.

“Local governments and other departments must be held to a high standard of transparency and accountability,” he added.

According to the analyst, Italy must regain confidence in itself.

“Consistent business practices, flexible labor and business laws, and steady economic growth can transcend political ideology. This kind of comprehensive reform would reinvigorate the economy, create jobs and bring faith back in the new system,” Adriano Marchese concluded.