Rift Over Pension Cuts Threatens Italian Government

In Europe’s march toward a common currency, no leader has coaxed more sacrifices from his people or closed a wider gap in his country’s budget than Italian Prime Minister Romano Prodi--and at little cost to his popularity.

But now, one step from bringing Italy into the elite club that will launch the new currency, Prodi is stumbling. His coalition has been thrown into turmoil by a Communist ally who calls himself one of the last defenders of the European welfare state.

Unable to agree on cuts in welfare spending, Prodi and the orthodox Communist leader, Fausto Bertinotti, staged a dramatic public showdown Tuesday as Parliament opened a debate that could topple Italy’s first leftist government since World War II.

“I ask the forces who have supported this government not to throw the country into crisis,” the prime minister pleaded in an hourlong speech to the Chamber of Deputies, Italy’s lower house. “That would be the craziest crisis in the world.”

Bertinotti, resisting pension cuts and demanding that the state create 300,000 jobs, rose and vowed anew to vote against the budget--a move likely to ensure its defeat.

“I have listened to the prime minister’s words and heard only echoes [of our proposals], not solutions,” he declared.

Rightist opposition leaders called for the prime minister’s resignation but stopped short of trying to force it with a vote of no confidence. Without the Communists behind him, Prodi would lose such a vote, obliging President Oscar Luigi Scalfaro to name a caretaker prime minister or call elections.

The stakes are huge for Italy, which is threatened more than any other industrialized nation by the time bomb of declining birthrates, an aging population and unsustainable pension and health care costs. Prodi’s 1998 budget would slash $2.9 billion from those benefits.

A founding role in the new European Union monetary system, most Italians believe, would compensate for those sacrifices by boosting their economy and national self-esteem. Countries that will launch the new currency, the euro, in 1999 are to be chosen next spring.

But without approval of Prodi’s budget this fall, Italy is unlikely to achieve timely reduction of its budget deficit to 3% of gross domestic product--the limit set for currency club membership. Since taking office in April 1996, Prodi has halved the deficit with $60 billion in tax hikes and spending cuts.

Tuesday’s dueling leftists could not be more different.

Prodi, 58, an owlish, soft-spoken professor of economics, is a free-market convert. Bertinotti, 57, an acerbic trade unionist who made his name in epic battles with Fiat auto executives, still preaches class struggle. His Communist Refoundation party has 35 seats in the lower house, enough to make or break the governing majority of Prodi’s Olive Tree coalition.

Bertinotti warned lawmakers: “If Europe demands pension cuts today, tomorrow it will demand other cuts in the welfare state.”

Debate in Parliament resumes today. Some believe that Bertinotti will, in the end, vote for the budget.

“It would have been silly of him not to start a crisis,” said political scientist Franco Pavoncello of Rome’s John Cabot University, “but it would also be suicidal to push it too far.”