Italian premier Conte flexes his muscles as he expands state intervention

Rome — Italian Prime Minister Giuseppe Conte made it clear to the country’s corporate elite that he will be calling the shots more often in a pandemic-stricken economy.

Conte and cabinet members showed up in force at the weekend at a gathering of financial and company leaders on the shores of Lake Como in northern Italy. Meanwhile, many executives and investors stayed away or sent deputies as a surge in coronavirus cases put a damper on the event.

“At this moment, the state cannot just be a referee,” economic development minister Stefano Patuanelli said at the Ambrosetti Forum in Cernobbio. “The great transformation of production arrangements must be directed by significant public governance that sets the guidelines.”

Conte’s response portends a partial reversal of a privatisation drive promoted by Mario Draghi when he was the Treasury’s top civil servant in the early 1990s. Drawing often on Cassa Depositi e Prestiti, a state-backed lender recently endowed with more than €40bn to buy companies, Conte is expanding state intervention in everything from highways and digital infrastructure to the stock exchange and steel.

While the government has always had a sizeable role in an economy that has struggled with stagnation and a lack of competitiveness for a quarter-century, the resources at Conte’s disposal leave no excuse for failure. The risk is that money will be spent on propping up failed businesses rather than modernising the economy.

“The state has shown it’s often unsuccessful in managing companies,” Giuseppe Pasini, CEO of steelmaker Feralpi Siderurgica, said at Cernobbio. He cited Italy’s repeatedly bailed-out airline: “Look at Alitalia.”

Better grip

Still, the line-up of Conte and seven cabinet ministers was a display of the power shift in Italy’s economy. The premier has boosted veto powers on foreign investments, meddled in company decisions and considered nationalisations as the virus pandemic upended the economy this year.

Conte and his ministers can take some pride in their crisis management. Italy imposed one of Europe’s harshest lockdowns and now has a better grip on infections than countries such as France and Spain. Finance minister Roberto Gualtieri predicted a stronger-than-forecast rebound for the third quarter.

Emergency measures to support companies, jobs and incomes “were decisive to enabling the Italian economy to restart, as is happening now”, Gualtieri said on Sunday.

A €209bn boost from the EU, thanks in part to joint debt issuance that Italy has long advocated, will also help.

Perhaps most important, Gualtieri plans to set a “significant” target for reducing Italy’s debt, betting that faster growth will succeed where fiscal belt-tightening by his predecessors failed.

That would assuage investor concern that the sustainability of Italy’s debt — expected to rise to more than 150% of GDP this year — won’t entirely rely on further European Central Bank asset purchases.

Cushioning the blow of the pandemic might have been the easy part. Conte now faces the formidable challenge of trying to revive the economy of an ageing and divided country.

“Italy has colossal structural problems,” said Riccardo Illy, chair of Polo del Gusto, a portfolio of food ventures owned by his coffee-roaster family. “We have enormous debt that stops us from investing, unless we have EU funds. And we have a bureaucracy that makes any initiative slower or impossible.”

While Illy is looking for the government to back out of the economy again after the crisis, most are still trying to figure out Conte’s plans.

“We’ve been waiting for years for an industrial strategy from the government,” said Alex Lasagna, deputy CEO of Algebris Investments UK. “It would be important to understand where we’re going and who’s doing what.”

Bloomberg