The Financial Distress of the Italian State,

This paper takes a scientific approach by attempting to understand a phenomena and subsequently suggest policies and actions designed to improve the situation, applying this approach to the financial distress of the Italian State currently posing a tangible risk for its economic, social and political sustainability, and for the future of younger generations. In this chapter, we start by defining the present as the conjunction between the past and the future, describing how Italy has currently one of the highest public borrowing/GDP ratios (135.1% of GDP in July 2015) and has not yet recovered since the 2007-08 crisis. In July 2015, leading Italian, European and international agencies estimated that the country will see the first increase of 0.7-0.8% in 2015 since the drop in GDP of about 9-10% following on from 2008. The past can be analyzed based on evidence such as revenue (total and split in different items), expenditure (total and split in different items), surplus or deficit (before interest and after interest) and then interpreted to identify why some trends occurred. It is important to clarify right from the start that the situation of public finance is determined by the flow of revenue and expenditure incurred by central state departments, regional and local governments (these are the provincial and municipal governments in Italy), agencies, authorities and public owned enterprises whose financial transactions must be consolidated according to European Union accounting rules. It is possible to shed light on the current Italian financial distress by adopting a framework based on five main factor groups: economic environment, institutional system, politics and political behaviour, efficiency and functioning of public administrations, and social environment. These five groups of factors interact with one another. In the last two decades, the global and domestic economic environment has had an impact on public revenue and expenditure, creating positive or negative conditions for institutional and public administration reforms. In the same period, the institutional context and rules, such as the power of the central Government, regional and local governments, relations between Parliament, the Government and legal system and jurisdiction, significantly influenced the political arena on the one hand (causing the instability of the Government) and became more uncertain and instable on the other hand as a result of the new political movements and parties. What’s more, the formal rigidity of institutions and the short-term mindset of politicians and policy makers penalized reforms in public administration. Poor efficiency in public administration and a lack of quality in public services had a negative impact on the productivity of private businesses and the market place, hindering the implementation of reforms. The first major uncovering of corruption in 1992 (known as Tangentopoli) led to political instability and a negative impact on material (roads, railways, ports, etc.) and immaterial (education system, universities, research, innovation, etc.) public investments and on private investments by businesses. The analysis of the data follows the method used in the social sciences through the study of trends. It offers an interpretation, to an international audience, of the financial distress of the Italian State situation supported by evidence.