Italy Faces Recession

...According to an old yet still relevant joke, of the 10 editors at the public television network, five are Christian Democrats, three are Socialists, one is a Communist, and only one is a journalist...

...Since Cossiga first took office last August on what was expected to be an interim basis, following over a year of political oblivion, he has devoted all his energies to the twin battle against terrorism and against inflation...

...Despite the intransigence of the opposition...

...Indeed, over the last 18 months, Italy has had the highest rate of economic growth in the European Economic Community (eec...

...After an economic boom period, Italy is apparently on the verge of recession...

...As Minister of Police when his close friend Aldo Moro was kidnapped and killed, Cossigia took full moral responsibility and resigned his post...

...If there has been no improvement in the economic situation by next fall, he will probably find himself in the position of a chief of government who cannot govern...

...Labor leaders praised his decision as eminently wise, deliberately ignoring a signal fact of economic life: Any increase in indirect taxation, if not selectively applied to luxury goods, inevitably sparks off wage increases under the wage-indexing system, and thus contributes to inflation...

...But this time it also increased the excise tax on the sale and consumption of certain imported commodities as well as the value added tax on coffee, wine, electricity, natural gas, medicines, books and movie tickets...

...Attempts at reaching a consensus on vital decisions are continually frustrated by inter-party squabbles and intra-party rivalries...

...Its increasingly literate, well-fed and elegantly dressed inhabitants have enjoyed 35 years of parliamentary democracy and an unprecedented degree of prosperity...

...The Prime Minister is as competent an administrator as any leading Christian Democrat, with the possible exception of the brilliant and wily Guilio Andreotti...

...To stop the steady increase should beof imports45.9 per cent higher in lira terms in the first four months of 1980 than in the same period in 1979-And Silvio F. Senigallia reports regularly for The New Leader on Italy...

...Prime Minister Francesco Cos-siga and his coalition government of Christian Democrats (DC), Socialists (PSI) and members of the tiny center-left Republican Party (PRI) made another attempt this spring to get to the root of the country's economic malaise...

...Italian leaders have learned from experience that it is easier to hit the taxpayer as consumer than as wage earner, and they recognize that at the moment it would be politically risky to push direct taxation of wages and profits...

...At the same time, like most economists whose judgment is not affected by ideological bias, the government knows that strong action must be taken to check rampaging inflation and that labor costs must be reduced if Italy is to compete successfully in international markets...

...Not surprisingly, upon hearing that their sacred cow was to be molested, union leaders threatened a series of strikes and mass demonstrations...

...As for Cossiga's ambitious three-year economic program, it does not stand a chance of being enacted...

...Meanwhile, the rising prices of textiles, clothing and furniture important foreign currency earners in 1979-have severely cut back export sales...

...Today, it looks as if he is losing on both fronts...

...The media, including radio and television, reflect partisan rather than independent views, and major jobs are apportioned on the basis of political loyalty...

...Left-wing economists maintain that the answer lies in fuller employment through major public investment in the country's underdeveloped Southern areas, and they point with pride to the strong economic showing in the first half of this year, equal to an annual growth rate of 7 per cent...

...Their stony refusal to cooperate received the support of the Communists, while the Socialist Left-wing joined the chorus despite the PSI's participation in the government sponsoring the unpopular measure...

...Italy, of course, is a resilient country with many hidden strengths...

...prevent the devaluation of the lira requested by leading industrialists such as Fiat's executive vice-president Umberto Agnelli, it would slightly and temporarily amend Italy's system of wage indexing (the so-called scala mobile...

...However, oil price increases and the bite of the American recession suggest a sharp downturn in the second half of the year...

...Only the full and loyal support of the Socialists could give Cossiga the political strength he needs to govern effectively...

...Unwilling to face a showdown, Cos-siga beat a hasty retreat and called, instead, for the additional indirect taxation...

...It seems that whenever an extra turn of the screw is needed to fight inflation and redress the balance of payments deficit, the Italian government automatically charges more for gas...

...He also has acquired a reputation for vigor and integrity...

...Small wonder, then, that the present Cossiga government, hailed at the time of its seating a few months ago as the harbinger of a new era of political stability, is already unsteady...

...The labor unions and Left-wing parties are strongly opposed to deflationary policies, though, claiming that the working class would bear the brunt of a recession while management and the affluent middle class would see their (insufficiently taxed) profits grow...

...This vicious circle, leading to higher inflation and aggravating the currency crisis, can be broken only by basic structural reform, which, Ciampi's warning notwithstanding, is nowhere in sight...

...The country's other industrial giant, Montedison, is closing some of its plastics plants because of reduced demand...

...Fiat has had to limit car output to ease stocks, and layoffs have already been threatened...

...And the 15.4 per cent jump in the general cost of living here -recorded for the first five months of this year-will complete their schadenfreude...

...Higher energy prices have the same effect, hitting the economy first through the price increases themselves and then through the scala mobile...

...It can hardly be denied, though, that economic, policial, and social problems are mounting and that Italian governments have been unable to handle them with any measure of effectiveness...

...Spurred by the Bank of Italy's governor, Carlo Ciampi-who pressed for immediate measures to dampen consumer demand, and so curb imports and take pressure off the lira without sacrificing industrial investments-the government announced its intention to administer a dose of bitter economic medicine...

...If this is true, many people in the United States and elsewhere will rejoice to learn that last month the price of gasoline in Italy was raised to more than S3 a gallon...

...At times the country's leaders find it difficult even to talk to each other...

...The fight against terrorism has been undermined by the impeachment-like procedure brought against the Prime Minister in Parliament to determine whether he alerted the deputy secretary of the DC party, Carlo Donat Cattin, to the fact that his son was about to be arrested as a suspected terrorist...

...It will be recalled that throughout the 1970s, Communist, Socialist and labor politicians blocked any incomes policy aimed at checking inflation by reducing monetary outflow...

...This should be borne in mind when listening to those doom-sayers who feel that Italy is in the grips of a strange wasting disease...

...The Christian Democrats' satisfactory showing in the administrative elections last June 8-coupled with minor losses for the Communists gave Cossiga a new lease on life, but it is likely to prove a short one...

...It has always managed to "muddle through" in its own unorthodox way...

...But they are almost certain to persist in the ambiguous policy that has them allied with the Christian Democrats in the national government and with the Communists in several major city governments...

...Nor does the pressure of public opinion act as a unifying force...

...And this being the case, Cossiga will probably have no choice but to ask for another dissolution of Parliament early in 1981...