approval from the government and would thenrequire a lengthy approval process with two-thirdsmajorities in parliament.

The reform would restrict telephone taps--oneof the main investigative methods used by prose-cutors in inquiries against Berlusconi. It wouldalso separate the careers of prosecutors andjudges--a key demand of Berlusconi supporterswho accuse the judiciary of ganging up againsthim.

Critics say the move would undermine the inde-pendence of the judiciary as it would place prose-cutors under the authority of the justice ministry.

A few days before, a magistrate had given herapproval for Berlusconi to stand trial from April 6on charges of having sex with a 17-year-old pros-titute and then using his status to try to cover itup by getting her out of police custody.

Prime minister Silvio Berlusconi's cabinet gaveinitial approval to changes to Italy's justice sys-tem, shortly after prosecutors said he shouldstand trial for sex with an underage prostitute andabuse of power.

The measures include a proposal to reinstatefull parliamentary immunity, which would coverBerlusconi as he is a deputy. They were immedi-ately slammed by magistrates as an attempt topunish them for investigating the prime minister.

"The cabinet agreed with and approved unani-mously a report by Justice Minister AngelinoAlfano on constitutional reforms of the justicesystem," the government said in a statement afterthe cabinet meeting.

The government is also thinking of makingjudges liable for their actions, sources said.

The draft changes still needed definitive

Europe should supportnational reconciliation inLibya but shouldn't export itsdemocratic model, Italy's for-eign minister said, voicingfears that the country couldsplit in two. Franco Frattinicalled for a stability anddevelopment plan for theregion similar to the"Marshall Plan," the U.S.-ledreconstruction program forpost-World War II Europe.He urged Libya to draft a newconstitution but "Europeshouldn't intervene, Europeshouldn't interfere, Europeshouldn't export,” except toencourage peace, he said.

Europe’s ModelMay Not Be

Libya’s, Says Italy

FEBRUARY 2011

Berlusconi Cabinet ApprovesA Justice Reform

VOL. 11 / NO. 2/ $15FOUNDED IN 1995 BY MARIO CALVO-PLATERO

A P U B L I C A T I O N O N I T A L I A N E C O N O M I C S , P O L I T I C S A N D F I N A N C E

Italy And RussiaKick Off A Year

Of CulturalExchange

And Medvedev Visits TheVatican... See Page 3

Politics . . . . . . 3 & 5

EU Helps With Migrants

Olympic Chair Named

Italy’s Tunis Ties Tighten

Solar Energy Shines

Italy’s Women Walk Out

President Calls A Truce..

...And Italians Back Him

EcoNoMY . . . . 7 & 8

Consumers Act Skittish

Inflation Edges Up

Quarterly Growth Lags

Retail Results Dip

coMPANY NEWs . . 9

Fiat CEO Flags Change

Insurer Loses A Director

Lavazza Looks East

Ferrari Falls In With Ford

Metroweb Mulls Sale

FiNANciAl NEWs . .12

Banks Face Tough Times

Italian Savings Are Ripe

Wealth Tax Is Touted

Prada Ponders HK IPO

oPiNioN . . . . . . . . 14

Time To Get Serious

A Banker Remembered

I N S I D E

Berlusconi DraftsEconomic Reform Plan

Italian prime minister SilvioBerlusconi said that financialmarkets see his government as aguarantee of fiscal stability andinsisted that he has the politicalsupport to push through reformsto accelerate economic growth.

Berlusconi said his economicplan--which he expected wouldboost Italy's economic growthrate to 3% a year, or twice theaverage rate Italy posted in thedecade leading up to 2008--would require "full collabora-tion" from a broad array of polit-ical parties, labor unions andbusiness associations. The planwill be presented in detail to theEuropean Union by April, and"won't be easy or quick,"Berlusconi said. Musteringbipartisan support for a long-term project will be a challengeat a time of daily calls forBerlusconi to resign. Only 34%of Italians think Berlusconi

should remain at the govern-ment's helm, while 30% wantelections and 19% want a "tech-nical" government, the ISPOpolling institute reported. Theprime minister also made bipar-tisan agreements harder to forgewhen he said that his parlia-mentary majority had emergedsmaller but stronger following aset of defections from his Peopleof Freedom party. The depar-tures came in the wake of pro-posed judicial reforms that crit-ics said were tailored to provideBerlusconi with immunity fromseveral legal actions.

See Also Page 5

Premier Claims HeHas The SupportTo Spur Growth

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I N B R I E F

REVIEW ITALY 3POLITICSFEBRUARY 2011

Former Italian OlympicCommittee Chair MarioPescante, a deputy chairmanof the International OlympicCommittee, was namedMonday to spearhead Rome'sbid to host the 2020 summergames.Pescante, 73, a former mid-dle-distance runner, wasnamed head of the 'Roma2020' promotion panel hoursafter Ferrari chief LucaCordero di Montezemolo,widely tipped for the post,declined the government'soffer to take it up.

Italy is closer than ever toTunisia, according to Italy'sambassador to Tunis, PietroBenassi, who met withTunisia's Education Ministerand official interim govern-ment spokesman TaiebBaccouche. Benassi under-scored that the approximately700 Italian enterprises inTunisia will be continuingwith their activities, accordingto press agency TAP, confi-dent that the investment cli-mate after the revolution isimproving and that Tunisia -due to its competences,human resources and strategicposition - is the ideal place toattract foreign investment. Theambassador also noted Italy'scommitment within the cul-ture and educational sectors.Baccouche, on the other hand,focused on the solid ties bind-ing the two friendly popula-tions, reaffirming the interimgovernment's intention to fur-ther strengthen them.

Italy Is A Friend ToEgypt

The first steps to be taken byItaly in order to supportEgypt's new phase of politicaldevelopment were revealedduring a congress in Romeorganised by the Italy-EgyptFriendship Association. Theyinclude continuity in bilateralrelations; providing greaterimpulse for Italy's diplomaticactivity at the European levelfor the Middle East area and aredesigning of the Union forthe Mediterranean (UpM).

Rome NamesOlympic Chair

Italy AffirmsTunis Ties

EU Commits Funds To Help ItalyWith Migrant Influx

Unrest In North Africa Sends Boatloads Of Migrants To Italy Seeking WorkThe European Union is ready

to help Italy cope with thou-sands of Tunisian migrants whohave fetched up on the island ofLampedusa, the spokespersonfor European Internal AffairsCommissioner CeciliaMalmstrom said.

"The Commissioner hasalready identified a series ofconcrete measures to meetItaly's needs," the spokespersonsaid. The EUR100 million ofaid Italy has requested to dealwith the emergency could begranted "quite quickly".

Malmstrom is in "constantcontact" with frontier agencyFrontex, which is ready tolaunch a mission, she added.

Berlusconi requested an EUsummit on the migrant crisis.Maroni said he feared otherrisks from the "institutionalearthquake" in Egypt.

Maroni has already raised therisk of terrorists posing amongthe asylum seekers fromTunisia.

Earlier, Foreign MinisterFranco Frattini reiterated acharge that the EU had not beenready for the exodus fromTunisia. The 800-bed receptioncentre on Lampedusa, which iscloser to Tunisia than Italy, hasbeen reopened after the arrivalof more than 2,000 migrants,many of whom have moved on tocentres in other parts of south-ern Italy.

Europe's top rights body saidItaly must not expel thousandsof illegal migrants who arrived

in recent days, mainly fromTunisia, but it should takeresponsibility for them.

The Parliamentary Assemblyof the Council of Europe calledon Italy to involve the United

Nations and other aid agenciesin dealing with the migrants,about 5,000 of whom havearrived on Lampedusa in recentweeks. Boats carrying Egyptiansalso landed in Sicily this month.

Italy’s senate heard from regulators whose recent sub-sidy offer for solar-generated electricity had elicited 2.5times more applications than predicted, reports said.The sunny southeastern region of Puglia has so manynew solar farms that its Ecology Party president is beg-ging for a moratorium. At this rate, Italy would add moresolar capacity this year than world leader Germany, andthe "feed-in tariffs" paid to Italy's new solar generatorswould raise the country's electric bills exponentially.Forecasters had expected Italy to install about 1.8gigawatts of solar power in 2010. Instead, the country'srenewable-energy agency, Gestore Servizi Energetici,got applications for 3.77 gigawatts and counting. Italyhas already reached the level targeted for 2020, it said.

Italy’s Solar EnergyExertions May Lead To AGlut Of Sunshine Power

Software hacker group "Anonymous" launchedattacks against the Italian government's website, cit-ing political grievances, a report said. "Anonymous"announced its distributed denial-of-service assaultssaying they were protesting "the political and econom-ic situation in Italy has become unstable." Police hadalerted the site to the potential attack ahead of time,allowing it to put counter measures in place and thewebsite did not appear to be blocked. DDoS attacksare efforts to overload websites with so many simulta-neous requests that computer servers can't handle theload and freeze or crash. A loose-knit group of onlineglobal hackers, "Anonymous" previously attackedgovernment websites in Egypt and Tunisia.

“Anonymous” HackersLaunch A Protest On

Italy’s State Site

Italo-Russian Leaders Kick Off AYear-long Cultural Exchange

A year-long cultural exchange program between Russia and Italykicked off the first of 550 planned artistic events in Rome. The Palazzodelle Esposizioni opened an exhibit of 80 works by the Soviet master ofrealism, Aleksandr Deineka (1899-1969), which runs until May 1st.

Premier Silvio Berlusconi attended the show's inauguration withRussian president Dmitri Medvedev, thereby launching the Year ofRussian Culture and Language in Italy, and the Year of Italian Cultureand Language in Russia, featuring events across a range of artistic fields,from exhibits to concerts. Medvedev also met Pope Benedict XVI in theVatican, the first visit to the Holy See by a Russian leader since theestablishment of full diplomatic relations in 2009, a sign that the oncefrosty relations between the Vatican and Russia are gradually thawing.

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I N B R I E F

REVIEW ITALY 5POLITICSFEBRUARY 2011

Italian president GiorgioNapolitano declared he cannotapprove a government decreethat grants municipal adminis-trations greater taxation pow-ers, the president's office said.

A key parliamentary com-mittee set up to supervise theintroduction of "federalism"reforms did not approve the setof measures in a parliamentaryvote so premier SilvioBerlusconi held a cabinetmeeting to approve them any-way by decree. Italy's constitu-tion requires that a govern-ment inform Parliament that itintends to promulgate a decreeeven when the legislativechamber does not approve it.

Northern League leaderUmberto Bossi pledged hissupport to Premier SilvioBerlusconi in a late-nightcoalition summit after the pre-mier was sent to trial April 6on charges of using an under-age prostitute and abuse ofpower in getting her out ofpolice custody in another case.

"I'm with you, let's push onwith reforms, let's keep ourword," Bossi told Berlusconi,according to those present.Bossi, the premier's key ally,however asked him to "shakeup" the government in order tosecure reforms, especially afederalism programme that isdear to the League's heart, thesources said. Berlusconi, forhis part, pledged to widen thecentre-right's House majorityto 325 seats to make sure fed-eralism passes key commis-sion tests, they said.

Bank of Italy’s Mario Draghiwas redoubling his efforts towin Germany’s endorsement asEurope’s central bank head.

President VetoesFiscal Decree

League Says ItBacks Premier

German DoubtDogs Draghi

Silvio Berlusconi has “hiscase to put and good legalmeans to defend himself againstthe charges. Our constitutionand our laws guarantee that trialproceedings like this, whereserious charges have beenbrought and the prime ministerrejects them, are conducted andconcluded in accordance withjustice. I place my trust in therule of law,” said PresidentGiorgio Napolitano in a report.

This is precisely what thepresident urged Mr Berlusconito do at their last one-on-onemeeting in the presidentialpalace, in an attempt to avertstrained or broken relationswith, or pre-emptive strikesagainst, what the premier hascondemned as “the senseless,unforgivable initiatives of somemagistrates”. The interview with

the President Napolitano waspublished yesterday on the eveof his visit to Germany. Itreveals the depth of his concernat this critical moment in Italy’snever-ending transition espe-cially the idea that Italy is slid-ing into barbarism even in theway it administers justice. Forthe first time, however, the pres-ident used an unusually strongimage in his guarded language,admitting that “all too often,over-emphatic tones are usedand there is a lack of modera-tion when making judgements.Many views are characterised bya certain extremism. All thiscontributes to raising politicaltensions. Political parties clashand split, and although this isnormal enough in a democracy”,in Italy “it is degenerating intoout-and-out political guerrillawarfare”.

Unfortunately, after the col-lapse of the old party system inItaly, electoral reform has failedto build “a stable structure orsolid two-pole system,” he said.

Thousands of women protestedacross Italy demanding that SilvioBerlusconi resign over a recent sexscandal that has deepened the con-servative prime minister's troubleswith the law and galvanized anationwide movement calling forgreater dignity and women’s rights.

"This country is not a brothel,"chanted protesters gathered insquares in Rome, Milan, Florence,Palermo and hundreds of otherItalian cities. Groups of women alsogathered in cities abroad, includingNew York, Tokyo and Brussels.

The protest came days afterItalian prosecutors requested thatMr. Berlusconi stand trial oncharges of patronizing an underagewoman for sex and abusing his pow-ers in an attempt to cover up therelationship, charges the premierstrenuously denies as groundless.

"We felt the moment had comefor Italian women to show theirpower and pride," said FrancescaComencini, a filmmaker who orga-nized the protests with her sister."We want to call on the governmentto promote welfare measures forwomen." Supporters of the 74-year-old Mr. Berlusconi dismissed thedemonstrations as political anticsfueled by left-wing politicians, con-tinuing to back him despite monthsof media coverage of the premier'slate-night parties with young womenand the defection of a key politicalally, Gianfranco Fini, last year thatalmost toppled the government.

"Half the country lovesBerlusconi and the other half thinkshe's a monster," said PierluigiBattista, an editorialist for Italiannewspaper Corriere della Sera.

Italy ranks 74th out of 134 in theWorld Economic Forum's GenderGap Index.

Napolitano Calls For ATruce In Italian Politics

Italian WomenProtest Premier

In Call ForWomen’s Rights

Public confidence in Italianinstitutions is down to a newrecord low, a survey showed.

68.5% of those interviewedsaid their confidence in institu-tions fell last year, the highestfigure since 2004, said theEurispes research agency.

There was a 22% increase inthe number of people who feltlet down, it said. Some 12% saidthey were less confident in gov-ernment.

Only 2.2% of the sample saidtheir confidence in institutionsgrew in 2010. It remainedunchanged for 27.5%.

The only institutional figurein which trust rose was that ofthe Italian president, GiorgioNapolitano, whose rating rosefrom 62.1% in 2009 to 67.9%last year and 68.2% this year,Eurispes said.

Italians LoseConfidence InInstitutions ButBack President

Calisto Tanzi will not go to jail.The ruling came from the criminalchambers of the Court ofCassation, which upheld theappeal submitted by the formerParmalat boss, ordering a newexamination of the case before theMilan review court. The supremecourt’s decision overturns the rul-ing of the Milan court’s indict-ment division. The Milan publicprosecutor’s office had alreadyapplied for Mr Tanzi’s arrest inthe context of the Parmalat affair,claiming there was a risk of flight.Currently, Mr Tanzi, 73, is underhouse arrest. The first warrant forhis arrest dates from 2003. On 18December 2008, Mr Tanzi wasconvicted in the court of firstinstance and was sentenced to tenyears’ imprisonment for market-rigging by the court of appeal inMilan.

Court RejectsJail Term For

Parmalat’s TanziPending Appeal

U P D A T E

A President Weighs InWith His Faith In The

Rule of Law

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I N B R I E F

Italy's unemployment ratewas 8.6% in December,unchanged from the monthbefore but down from 8.8% inDecember 2009, national sta-tistics agency Istat said.

Istat revised the seasonallyadjusted November joblessrate to 8.6% from a previous-ly reported 8.7%.

But youth unemployment,for Italians aged 15 to 24,rose slightly to a new recordlevel of 29% from 28.9% inNovember and 26.6% inDecember 2009, Istat said.

The Bank of Italy expectsItaly's economy to expand0.9% this year and by 1.1%in 2012. Business lobbyConfindustria says a 2% rateis needed to generate net jobgrowth.

Italy's state-sector deficit,a key indicator of the overalltrend of public finances,stood at about EUR2 billionin January, compared with aEUR4.2 billion surplus in thesame month of 2010, theEconomy Ministry said. Theministry said the deficitstemmed mainly from aEUR1.2 billion loan issuedfor Greece, aimed at safe-guarding the financial stabili-ty of the euro zone. It addedthat a growing trend in taxreceipts partly offset higherpayments in January.

2010 ended with a 1.2%drop in foreign visitors, com-pared to an already tough2009, according to Agriturist,the farm holiday associationrun by Confagricoltura, whichspecified that spending byforeign tourists dropped by2.3% compare to 2009 dur-ing the January/October peri-od.

A drop that had major con-sequences on employment:according to Federalberghi,in 2010 sackings of full timeworkers in the hotel sectoramounted to 3.6%, while inthe entire tourism sectormore than 20,000 jobs werelost.

Joblessness LevelStable For Some

Public FinancesSee A Shortfall

Tourism JobsSuffer Fallout

REVIEW ITALY 7ECONOMYFEBRUARY 2011

Italians have suddenlybecome more pessimistic abouttheir ability to maintain theirlegendary savings skills, raisingdoubts about the country's mainline of defense in the sovereigndebt crisis. Consumer confi-dence in the euro-zone's third-largest economy unexpectedlyplummeted in January, drivenentirely households' fear of thefuture, a monthly survey pub-lished by national statisticsagency Istat showed.

The headline confidenceindex fell to 105.9 from 109.1 inDecember, which included a14-point drop in people's beliefthey can save for the future. Thereading sank back to the levelsof the summer of 2008, whenthe global financial crisis firstemerged to public view.

The dented savings prospectsare a critical point for Italy,where high household wealthlevels - more than five times

gross domestic product - havehelped shield the country's gov-ernment bonds from the sover-eign-debt crisis engulfing therest of southern Europe. Now,some 35% of Italian households-- and half the population in thepoorer southern regions - findmaking it to the end of themonth without tapping savings,said Gian Maria Fara, presidentof the Eurispes think tank inRome.

In contrast, business confi-dence rose slightly more thanexpected in January, reachingits highest level in three years,led by improved outlook for pro-duction. The confidence indexfor Italy's manufacturing sectorrose to 103.6 from a slightlyupwardly revised 103.1 inDecember, national statisticsagency Istat said. Italian busi-ness confidence had beenexpected to climb to 103.5,according to economists polled.

Consumer Confidence Takes A Dive But Businesses Are Still Bright

Italian Businesses Are ChipperBut Consumers Shudder

Italy’s trade deficit widened in December asimports grew faster than exports, the national sta-tistics agency Istat said.

Italy posted a seasonally-adjusted EUR3.2 bil-lion trade deficit in December, the largest-evergap in nominal terms, compared with a EUR399million deficit in the year-earlier period, and aEUR3.04 billion deficit in November 2010, Istatsaid.

Total exports rose 1.1% on the month, and21.2% on the year, with intra-European shipmentsdriving both figures, Istat said. Imports rose 1.5%on the month and 32% on the year, both driven bygoods entering from outside the European Union,Istat said.

On a full-year basis, Italy had a trade deficit ofEUR27.3 billion in 2010, Istat said, using unad-justed numbers. More than a quarter of gap wasposted with EU partners, as deficits withGermany, the Netherlands and Belgium more thanoffset surpluses with France, Spain and the U.K.,Istat's data showed.

Italy's trade deficit reflects the country's highreliance on imported energy. Italy posted aEUR51.2 billion full-year deficit in energy goods,and a EUR5.1 billion energy-trade deficit inDecember alone, Istat said.

Net of energy, Italy had a EUR2.4 billion tradesurplus in December and a EUR23.9 billion sur-plus for the year, Istat said.

Italy’s Trade Deficit IsWider Again As Energy

Import Needs Take A TollItaly's inflation in January rose to 2.1% on an

annualized basis, its highest rate since December2008, reports the government statistical bodyISTAT. The inflation rate tipped above theEuropean Central Bank's goal of 2.0% last month,whereas it hovered a point below, at 1.9%, inDecember. The monthly inflation rate for Januarywas 0.4%. Price increases were fueled by risingcosts for life's necessities, particularly fuel andfresh food, whereas entertainment took a hit. Onan annualized basis, transportation costs saw thegreatest rise, at 4.3% in January, whereas theannualized rate of inflation for housing, water,electricity and combustibles was a somewhat moremodest 3.9%. Big culprits in January were gaso-line and diesel fuel, which rose 3.5% and 4% foran annualized rate of 11.3% and 15.7% respec-tively. But ISTAT reckons the overall pace ofinflation will relent over to the course of the year,amounting to 1.2% for 2011. Subtracting fuel andfood, the annualized background inflation rate inJanuary was 1.4%, unchanged from December2010. As every year, the list of goods counted onthe inflation index changed to keep pace with con-temporary consumption habits. Out went DVDrentals. In came the tablet PC (such as the iPad),ethnic fast food, smoked salmon, and entry ticketsto national parks, zoos and botanical gardens.More weight will be given this year to transport,housing, water and electricity.

Growth Of Italy’s InflationTops Levels Not Seen

Since 2008

shopping in Milan

Italy’s economy expandedless than expected in the fourthquarter but continued to growthanks to the services sector,the national statistics instituteIstat said.

Italian gross domestic prod-uct grew by 0.1% in the finalthree months of 2010 from thethird quarter and by 1.3% fromthe final quarter of 2009, Istatsaid, using preliminary data

adjusted for the number ofworking days and seasonaleffects.

Economists polled had madean average forecast of 0.3%quarterly growth and 1.3%annual growth.

German GDP expanded by0.4% in the fourth quarter andthe French economy by 0.3%,both less than forecast, accord-ing to other data releases.

Italy's economy had expand-ed by 0.3% in the third quarterfrom the second quarter and by1.2% on the year, Istat said,revising up the annual figurefrom a previously reported1.1%.

Italian GDP grew by 1.1% in2010 after contracting 5.1% in2009, Istat added. The growthstemmed from the farming andservices sector while the indus-

trial sector contracted, it said.Manufacturing data releasedearlier in the month pointed to a0.2% quarterly contraction.

Italy's current account deficitwidened to EUR54.3 billionlast year from EUR31.7 billionin 2009, the Bank of Italy said,a sum that amounts to around3.5% of GDP. Italy's sovereigndebt rose to 4.5% last year toreach EUR1.84 trillion.

Italy’s Fourth Quarter Results FalterGDP Growth Slows In The Final Quarter Of 2010 As Italy’s Current Account Deficit Widens

8 REVIEW ITALY ECONOMY FEBRUARY 2011

Retail Sales’ Drop PutsPressure On Italy’s GDP

Consumer Skittishness Stifles Prospects For Italy’s Domestic Economy

"The brakes will remain onItalian consumer dynamics dueto labor-market difficulties,"Italian business lobbyConfindustria warned. Despitecompanies’ efforts to boost pro-ductivitym hiring expectationsby companies remain negativein 2011, according to a surveythe group conducted recently.

Fuelling concern, Italianretail sales declined unexpect-edly in November, led by fallingfood sales, national statisticsagency Istat reported. The sur-prise drop augurs badly forItaly's economic expansion atthe end of last year, and highercommodity prices and a troubledlabor market will likely keep thebrakes on the euro-zone's third-largest economy in 2011.Retail sales fell 0.3% fromOctober in seasonally adjustedterms, while climbing 1% fromNovember 2009 in unadjustedterms, Istat said. In October,Italian retail sales rose 0.3% onthe month and had been expect-ed to post a 0.1% increase onthe month, according to a poll ofeconomists. Fabio Fois, aneconomist at Barclays Capital inLondon, said the new disap-pointing data, coupled with hisown assessment of volumetrends in Italian retail sales,"suggest some downside risk" tohis expectation that real privateconsumption in Italy would beflat in the final three months of2010.

Unicredit expects Italian grossdomestic product would expand0.2% in the last three months of

2010. The Bank of Italy reviseddown its 2011 growth forecastfor Italy to 0.9%, while theInternational Monetary Fundalso revised down its 2012 GDPforecast to 1.3% from 1.4%.

Rising oil and commodityprices will further squeeze cor-porate margins and householdspending power, Confindustriasaid, adding that this shouldhave a "tranquillizing effect" oninflationary trends counteringwhat it called the "anxiety"expressed by the EuropeanCentral Bank. Food salesdeclined 0.5% in Novemberfrom October, while nonfoodsales fell 0.2%, Istat said. Thedrop in food sales was exacer-bated by a shift in habits asItalians increasingly shopped atdiscount food stores, where salesrose 2.6% on the year, it noted.

Italy’s Households SeeTheir Income Decline

The financial crisis has beencutting into the wealth enjoyed byItalians. A fall of 2.7% in dispos-able incomes was registered in2009 - the first such downturnsince 1995, says the nation's sta-tistical bureau, ISTAT, in itsreport on 'Disposable HouseholdIncome across the Regions'.

According to the institute, theongoing recession has led to ''aprogressive reduction in the rateof growth in the nation's dispos-

able income,'' which in 2006 -ahead of the outbreak of thefinancial crisis - had been show-ing a healthy 3.5% growth-rate.

And for once, the North-Southgap is in favour of the southernend of the country - with theNorth being hardest hit, whilesouthern Italian families seemedto have come off a little lighterfrom the effects of the recession.In 2009 there was a sharperdecline in incomes in the North.

I N B R I E F

Industrial orders rose by13.9% in Italy in 2010, thebiggest annual rise since2001, Istat said.

In 2009 orders fell by22.4%, the national statisticsagency noted. The boom wasled by orders from abroad,21.2% up. Industrialturnover rose by 10.1% in2010, again the best resultsince 2001, compared to an18.7% fall in 2009.

December’s Italian indus-trial orders rose 5.4%, morethan expected, even thoughactual turnover fell duringthe month, it said.

Industrial orders rose17.4% on the year in grossterms, Istat said. Orders hadfallen 4.3% on the month inNovember.

Output Levels Keep Pace

Italian industrial outputcontinued to expand inDecember, driven by growthin non-durable consumergoods production, statisticsoffice Istat said. Italian out-put rose a seasonally adjust-ed 0.3% in December fromNovember, after rising 1.3%the month before, Istat said.In annual terms, for whichthe data are only adjusted forthe number of working days,output rose 5.4% inDecember, up from 4.1%growth in November.Production of non-durableconsumer goods rose 1.7% inDecember, it added.

Industrial OrderLevels Are Up

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REVIEW ITALY 11COMPANY NEWSFEBRUARY 2011

Leonardo Del Vecchio, founderand chairman of eyewear manu-facturer Luxottica, resignedfrom the board of AssicurazioniGenerali, the Italian insurersaid.The resignation is in protest ofthe growing interference byboard members of the manage-ment of Italy's No. 1 insurer,according to people familiarwith the situation."He believes that the top man-agers of the Italian insurer arenot being left to work in a calmclimate," one person said.Clashes between shareholdersand Generali Chairman Cesare

Geronzi erupted following somestrategy remarks the latter madein an interview. Geronzi maderemarks suggesting Generalimay invest in Italian banks--some board members see this asa way to gain influence ratherthan to obtain long-term returnsin current economic conditions.The resignation of Del Vecchio--who handed over the opera-tional reins of Luxottica despiteowning two-thirds of the shares--isn't meant to be a "nice" ges-ture toward those trying to curbthe chief executive's powers,another person said.Sources close to Geronzi said

he was disappointed by DelVecchio's decision but insistedthat there had "never, repeat,never" been any points of con-flict over strategic guidelines atthe company.Earlier the board namedPhilippe Setbon as chief invest-ment officer of the group.Setbon, 45, became chairmanand chief executive of GeneraliInvestments, a unit of the Italianinsurer, in May 2009. Setbonwill report to Chief FinancialOfficer Raffaele Agrusti.

For more on Generali, please seepage 12

Luxottica Founder Del Vecchio Resigns From Board Of Europe’s No. 3 Insurer U P D A T E

N E W S W I R E

Fiat CEOUrges Italy ToEnact ChangeFor Business

Practices

News Corp. satellite unit SkyItalia and broadband operatorFastweb have agreed to combineSky's satellite TV offer withFastweb's broadband internet andlandline services in a deal aimedat boosting customer numbers inItaly. Consumers will be able to chooseentertainment, connectivity andtelephony with a single bill thatcombines the Sky Italia subscrip-tion with Fastweb's broadbandservices. Sky Italia and Fastwebsaid the new offer is better pricedthan purchasing the single ser-vices separately.

Historic Italian coffee makerLavazza has chosen India for thefirst plant it will build outsideItaly, the Turin company said.Analysts said the choice reflec-ted the growing importance of theIndian market to the Italian coffeeretail leader."Our dream is to turn India intoour second market after theItalian one," top executiveGiuseppe Lavazza said.The EUR20-million plant will bebuilt at a new model town calledSri City on the borders betweenthe states of Tamil Nadu andAndhra Pradesh in southernIndia, it said.It will produce ground coffee as

lAvAzzA

skY - FAstWEbwell as beans and capsules for theBarista chain it bought in 2007.

Metroweb, which owns a fiber-optic network in the Milan area,has hired an adviser to explorethe sale of the company, valued atbetween EUR400 million andEUR500 million. Metroweb's salecomes as Italy debates the bestway to develop broadband infra-structure in the country and cre-ate a fiber-optic national networkable to deliver high-speed ser-vices to clients.Metroweb is currently owned bydomestic utility A2A and StirlingSquare Capital Partners. TelecomItalia was reported to be interest-ed in the company.

Italian publisher RCSMediaGroup denied a news reportsaying it had decided to sell its50.7% stake in digital music unit,Dada, to a private equity firm, fol-lowing reports that RCS had hireda merchant bank last year toexplore options for its assets.RCS publishes Italy’s leadingnewspaper, Il Corriere dellaSerra. The company said its boardwas currently reviewing ways toincrease the value of assets that itno longer considers strategic.

MEtroWEb

rcs - dAdA

UniCredit has appointed Jean-Pierre Mustier to head its invest-ment banking business. Mustier formerly ran the corpo-rate and investment banking divi-sion of Societe Generale. Hereplaces Sergio Ermotti.

A subsidiary of Italian energygiant ENI and five managers willgo before a judge in Milan overcharges of bribery in Nigeria,legal sources said. A Milan judge has decided thatSaipem, controlled by the gas andoil group ENI, and five managersinvolved in the case will go ontrial on April 5, they said.

FErrAri

Italy's Ferrari said it has agreed"in good faith" to use the fullname of its new Formula 1 racecar after Ford complained that itsabbreviation was a copy of thename of its pick-up truck, the F-150. Ford sued Ferrari for referring tothe racer as the F150, saying itwas an infringement on its trade-mark. Ferrari said it would referto the racer by its full name--theFerrari F150th Italia, whichrefers to the country's 150thanniversary celebration this year.

UNicrEdit

sAiPEM

Generali Loses A Board Member

Fiat Chief Executive SergioMarchionne urged Italian law-makers to enact more busi-ness-friendly policies, onceagain waving the prospect thathe might one day move theauto maker's headquarters outof the country.

Mr. Marchionne, who alsoruns Chrysler Group, causeda ruckus in Italy when he sug-gested that Fiat might one daybe headquartered in the U.S.The Italian government sum-moned the executive to meet-ings with several ministers,including prime ministerSilvio Berlusconi.

Speaking before a parlia-mentary committee, Mr.Marchionne reiterated Fiat'scommitment to invest EUR20billion ($26.97 billion) inItaly in coming years. But hesuggested the heavy invest-ment was against his betterjudgment.

It also reduces the totalamount of break time duringan eight-hour shift from 40 to30 minutes and introducesindustrial action restrictionsthat aim to stop wildcatstrikes at the traditionallymilitant loss-making plant.

If the plan had been reject-ed and Fiat had opted toabandon Mirafiori it wouldhave proved a painful breakwith a big part of its past.

Turin is Fiat's home town -it stands for Fabbrica ItalianaAutomobili Torino (ItalianAutomobile Factory of Turin)- and it has produced millionsof cars at Mirafiori since itopened in 1939.

Marchionne claims Fiat istrying to usher in necessarychanges to industrial relationsin Italy to help make it com-petitive out of ''affection'' forits native land. His commentsreceived a mixed reactionfrom the centre-left opposi-tion.

Premier Silvio Berlusconifurther ruffled feathers bysaying firms would be justi-fied in quitting Italy if thedeal were rejected.

12 REVIEW ITALY FINANCIAL NEWS FEBRUARY 2011

Saipem, Europe's biggest oil services com-pany by market value, said preliminary fourth-quarter net profit rose 26%, to EUR237 mil-lion for the three months to December, com-pared with EUR188 million during the sameperiod a year earlier, more than expected, onthe year, as it benefited from a strong orderbacklog and the onshore segment, allowing itto propose a record-high dividend.

Saipem, which is 43% controlled by Italianoil firm Eni, said it estimates 2011 revenue toincrease by about 5%, gross operating profit byroughly 10%, and adjusted net profit to increaseby around 5%.

The board is proposing to shareholders a2010 dividend-per-share of EUR0.63, or 15%more than for 2009 earnings.

Saipem’s Profit SurgeWill Boost Dividends

Premafin Finanziaria shareholdersapproved a capital increase for up toEUR250 million, which will allow Frenchinsurer Groupama to take a minority stake inthe Italian holding company, as well as itsinsurance unit Fondiaria-SAI, or FonSai.

Premafin's investors approved the capitalincrease at an extraordinary shareholdermeeting in Milan, according to reports.

Premafin Chief Executive Officer GiuliaMaria Ligresti said she expects the capitalincrease to take place by June.

Premafin, which the Ligresti family con-trols, will in turn use the proceeds to takepart in a capital increase of up to EUR460million proposed by its unit FonSai, Italy'sNo. 2 insurer and will also pay off debt.

Premafin To Sell StakeAs It Hikes Capital Level

Italian prosecutor Fausto Zuccarelli de-manded the seizure of EUR7.3 million worthof assets from Credit Suisse and LehmanBrothers after accusing them of failing to paytaxes in a multi-billion securitization deal.

Credit Suisse Securities Europe and LehmanBrothers International Europe failed to declarea combined EUR66 million in fees they re-ceived in 2007 for the EUR2.2 billion secur-ization of health sector debts belonging to theCampania region, Zuccarelli stated.

"We seized the amount of money equivalentto the evaded taxes," Zuccarelli said. Teamedwith French investment bank Calyon, a unit ofCredit Agricole, the two firms acted as finan-cial advisors for the company that was handlingthe health sector debts securitization in 2007.

Italy Seizes Assets FromDealmakers

Banca Generali, the Italian assetmanager controlled by insurerAssicurazioni Generali, aims to winmarket share in Italy in comingquarters by poaching more of thevast household savings currentlybeing managed by financial advi-sors and private banks, ChiefExecutive Giorgio Girelli said."Italians are starting to understandthat there are different ways ofmanaging their assets and savings,and they can have different returnson their investments," Girelli said.He noted that savings in Italy arecurrently overwhelmingly con-trolled by retail banks as well asthe country's postal bank, most ofwhich are in short-term securitiesyielding less than inflation, headded.Italian families have an estimatedEUR3.6 trillion in financial assets,according to the Bank of Italy. Only7% of that sum is managed by spe-cialized financial intermediaries,Girelli said.Most of the rest is managed forcapital protection or simple cash-

management purposes, goals Girellisees as "hardly efficient" given thelong-term savings needs Italiansface at a time when future pensionbenefits are slated to decline.The emergence of asset managershas been blocked by the powerfulretail branch networks of the coun-try's banks whose client funds couldsupply their own capital needs.Around 10% of Italian householdsavings are in bank bonds--10 timeshigher the European average--which tend to offer yields similar toItalian government bonds but noth-ing like the liquidity.The large share of Italian bankdebts held by households is a "biganomaly," Girelli has said.Meanwhile, EUR452 billion inItalian wealth has been entrusted toasset managers, with more than20% of that figure run by foreigngroups, according to theAssogestioni trade group. But thatsum could grow quickly as a whop-ping EUR470 billion in governmentand bank bonds mature this year.

Banker Says Italy’s Savings Need Managing

Tough Funding Conditions Ahead For BanksItaly’s Bankers Meet To Assess The Sector’s Profit And Balance-Sheet Prospects

ferences between countries in-side Europe."

While the euro-zone sover-eign debt crisis has seen dra-matic moves in spreads--interest-rate differentials between onecountry's debt and Germanbunds--yields on Italy's own 10-year sovereign debt have stayed

within their 4% and 5% range ofthe past decade throughout theglobal financial crisis, as Bankof Italy Deputy Governor FabrizioSaccomani noted in a recentspeech in Berlin.

Most Italian banks have plansto boost efficiency and cut costsand should continue them, es-

pecially given that the "higherfunding costs are probably of astructural nature," the Bank ofItaly said. It urged Italy's banksto adopt "prudent" dividendpolicies and to continue to insurethey could withstand possiblemacroeconomic shocks as mea-sured by "severe" stress tests.

Italy’s banks face costly fund-ing challenges, largely due toweak global interest in euro-zone debt securities, the Bank ofItaly said following a meeting ofsenior central-bank officials andexecutives of the country's maincommercial lenders.

"The weak propensity for glob-al institutional investors to un-derwrite euro-area securi-ties...make raising funds on themarket particularly onerous forItalian banks," the central bankreported.

Credit growth is expanding inItaly but banks' profit margins are"very compressed," it said.

UniCredit, Italy's second-largest bank by domestic assets,lost money in its main homemarket last year, according to un-confirmed press reports.

Low interest rates coupledwith loan losses linked to the2009 recession have hurt prof-itability at Italian banks. Unliketheir counterparts in France,Germany, the U.K., Spain andIreland, Italian banks requiredalmost no help from the nation-al government during the globalfinancial crisis, winning themplaudits from credit rating agen-cies for their resilience.

But Italy's banks tap the na-tion's large pool of retail savingsas well as capital markets forfunding. Alluding to how fiscaland financial-sector problemsand imbalances elsewhere in theeuro area are causing trouble inItaly, the Bank of Italy said onereason that market funding costshave risen is due to "the emer-gence of strong interest-rate dif-

Banca Generali Guru Sees Window For New Clients As Bank Bonds Mature

REVIEW ITALY 13FINANCIAL NEWSFEBRUARY 2011

project-financing bank, whoadded that he wouldn’t “theoret-ically” be against a wealth tax.

Currently, Italian incometaxes on declared labor incomeare the highest in the euro area,while those on capital incomeare among the lowest.

Last year Tax Police uncov-ered more than EUR49 billionin undeclared income, up 46%from 2009, the general com-mand of the force said. Almosthalf the sum, more than EUR20billion, was hidden by 8,850"total" tax evaders who haddeclared no income at all, theTax Police said.

Giulio Amato, who as primeminister presided over the dras-tic budget cuts of 1992 when thecountry was forced to devaluethe lira, has called for tappingItaly's estimated EUR8 trillionin private wealth to cut Italy'sEUR1.8 trillion in public debtrepresents.

Prime Minister SilvioBerlusconi rejected the idea of awealth tax as a form of "intellec-tual and strategic paralysis" thatwould only spark capital flightin a newspaper interview.

Senior debt and central bankofficials are nervous aboutrolling over more than EUR500billion in Italian governmentand bank bonds this year givenpolitical stability caused byallegations regardingBerlusconi's private lifestyle.

The International MonetaryFund, the Bank of Italy and theItalian Treasury itself all expectItaly's economy to expand atonly half the 2% annual pacethat businesses say is needed togenerate new jobs.

Amato's suggestion has trig-gered debate over a wealth taxthat would cut Italy's publicdebt burden to 80% of GDPfrom its current 120% level.That would require EUR10,000from each of Italy's 60 millionresidents. Amato, who heldsenior government posts in the1980s when Italy's public debtballooned, has suggested a tem-porary levy on the richest 10%of Italians.

Despite a public outcry ofopposition, in private conversa-tions, businessmen and evendealmaking investment bankersquietly acknowledge it might benecessary and even a good idea.

Italy would immediately beable to slash spending on inter-est payments and be on coursefor budget surpluses that wouldboost its credit rating.

Moreover, Italy's unusual highlevel of tax evasion - officiallyestimated at 17% of GDP or athird of all private-sector nation-al income - gives a fillip to theusual horror at the idea of con-fiscation.

"Evaded taxes are trans-formed into wealth," notedMario Sarcinelli, a former direc-tor-general of the Bank of Italyand now chairman for Italy ofDexia-Crediop, the public and

Strains On Italy’s Saving Capacity Leads Some To Consider New Tax

Wealth Tax Idea Gains SomeSupport As Premier Trounces It

Italian banks may need tobolster their equity and authori-ties may need to make sure theydo so without triggering a creditcrunch, the Financial StabilityBoard said in its recent peerreview of Italy.

"Further strengthening thecapital base of the banking sec-tor, without undermining thesupply of credit to the economy,may require the authorities'attention going forward," saidthe FSB, a global body presidedover by Bank of Italy GovernorMario Draghi.

The Italian financial systemshowed "much resilience"" tothe recent global financial cri-sis, due to its predominant rela-tionship-oriented businessmodel and stable retail fundingbases as well as conservativemortgage lending practices anda prudent supervisory frame-work that discouraged banksfrom participating in complexsecuritization activities and off-balance sheet vehicles

Italian banks should be the"first movers" in a pan-European process of recapital-ization of bank balance sheets,according to Mediobanca, whichrecently downgraded itsEuropean banking sector rating.

Global BankBoard Warns

Italy’s Banks OnCapital Levels

Telecom Italia, Italy’s largesttelecommunications company,said it has sold its 27% stake inCuba telecoms operator Etecsafor $706 million to Cuban com-pany Rafin, continuing a reorga-nization that aims to cut debtand refocus its operations.

"This deal completes thesales process, reaching the tar-gets set three years ago," saidTelecom Italia (TI) chief FrancoBernabe. The sale allows theItalian operator to focus on"Brazil and Argentina opera-tions, with a strong expansionpotential," he added

The sale of the Etecsa stake,is the latest in a series of mea-sures under Bernabe's 2010-2012 industrial plan to reduceTelecom Italia's debt pile and tofocus on growth markets inArgentina and Brazil and itsdomestic operations. TI’s earn-ings in Brazil have risen 24% inthe first nine months of the year.

In August, Telecom Italiareached a deal with theWerthein Group to increase itsstake in the company that con-trols Telecom Argentina to 58%from 50%, leaving the WertheinGroup with 42%. The dealended more than a year of acri-mony between the parties.

Telecom ItaliaCuts The Line ToCuba And DialsSouth America

I N B R I E F

The Italian banking associ-ation, or ABI, said thatdomestic banks have agreedto extend an existing mortgagepayment moratorium to July2011 in a move to supportItalian families with financialdifficulties because of theongoing economic crisis. Asof the end of November over35,000 families in Italy weregranted a suspension ofmonthly mortgage paymentsworth around EUR4.4 billion,it added.

Italian fashion power-house Prada has chosenHong Kong to make itsdebut on the stock market.

The Intesa Sanpaolo,Credit Agricole andGoldman Sachs banks havebeen chosen to handle theoperation, Prada said.

Italian media have specu-lated the IPO will come inJune or July. Poor marketconditions have forcedPrada to postpone makingits market debut four timesin the last ten years.

Prada is believed to havechosen Hong Kong overMilan because individualinvestors are more active inAsia.

Several buyout funds areeyeing Italian toymakerGiochi Preziosi ahead of aplanned auction after thecompany pulled its plansfor an initial public offeringlast year, reports said.Private equity firms likelyto bid include Axa PrivateEquity, Cinven Group andCharterhouse CapitalPartners, according to somesources. In September,when the IPO was plannedto take place, the companywas valued at EUR1 billion.

AXA Forays IntoFrench Fitness

AXA Private Equity saidit has bought a 22% stakein FitnessBoutique, aFrench retailer of fitnessequipment and food supple-ments.

Banks ExtendLoan Terms

Prada RenewsIPO Plan

Toymaker Is SeenIn Play Mode

The government of primeminister Silvio Berlusconi wassupposed to last until the nextgeneral election in 2013. Itlooks increasingly likely insteadthat his centre-right majority,the largest in Italian postwarhistory, may not survive for thefull duration of its five-yearterm. Berlusconi is set to appearin court in Milan on April 6 oncharges of paying a minor forsex and abusing his power tohave that same minor, a night-club dancer nicknamed Rubythe Heartstealer, released frompolice custody after she wasarrested for theft.

Those who think Berlusconi'sjudicial troubles may spell hispolitical end must considerhowever that he has never beenconvicted despite dozens ofindictments, and has won twoelections while facing criminalcharges. And last December hesurvived, if narrowly, a no-con-fidence vote in parliament. Thetide may be changing for him,though, after this month's mas-sive demonstrations demandinghis resignation. Scathing edito-rials in the Catholic press indi-cate that he has also lost thesupport of the church, perhaps amore important factor in a coun-try where the Vatican wieldsconsiderable influence over pol-itics.

Early voting would likely notproduce a clear majority with amandate to take action againstItaly's economic stagnation. A

general election under Italy'scurrent electoral system, adopt-ed in 2005, would rather pro-duce a stalemate and block theemergence of new figures withthe clout needed to take onItaly's long-standing problems.

The trouble with the presentelection system is that partyelites have the ultimate say onwho gets put on the ballot: vot-ers can only choose a party overanother, but not indicate aname. The slate of candidatesand their order is decided byparties, which have little inter-est in putting reformers in par-liament. It's time for the left andright to come together and giveItalians an electoral law thattruly allows them to have a sayin who represents them in par-liament.

The opposition to MrBerlusconi should also lookwithin its ranks to find a credi-ble leader. Years of internecinesquabbling have weakened thecentre-left and failed to producea figure with the uniting appealneeded to win a general electionin a country so divided alongregional lines. For all his faultsand alleged crimes, MrBerlusconi has been in the pastfifteen years the only Italianleader capable of winning adecisive majority in the North,Centre and South. Those whoaspire to replace him needcourage and vision equal to thechallenge – something that theyhave so far failed to show.

14 REVIEW ITALY OPINION FEBRUARY 2011

Rome’s mayor Gianni Alemanno is demanding that from now on allcabbies have to issue a proper automated receipt indicating their dri-ver's license along with the date, time and length of the trip. Italian taxidrivers, who are known for declaring abnormally low incomes and fre-quently stage paralyzing strikes against any move to regulate theiractivity, usually release pieces of paper in lieu of receipts. Rome's cab-bies have pledged to strike if forced to adopt the ruling.

* * *

Roberto Saviano, whose debut work revealed the underworld of theNeapolitan Camorra syndicate to the international public and led tomobsters putting a death sentence on him, will release a new book onMarch 2. Vieni Via Con Me (Come Away with Me), is based on mono-logues on organized crime that the award-winning author gave on arecent hit TV show on state broadcaster RAI. It is published byFeltrinelli.

* * *

The nearly extinct Marsican brown bear has failed to increase its num-bers despite legal protection and less poaching. The latest censusfound just 50 Marsican bears still exist in the wild, and are largely con-fined to the National Park of Abruzzo, Lazio and Molise. A 1969 cen-sus counted 60 bears. Whereas poachers once killed 5% of the bearseach year, they now extinguish 3.2% of the population. A newEUR3.6-million program for conservation efforts has been launched.

* * *

Pisa is pushing for an extraordinary collection of ancient Roman shipsto be given UNESCO world heritage status. Similar recognition is beingsought for the outstanding value to humanity of southern Piedmont’swhite truffle, whose recent harvest of around 2000 kg at prices aroundEUR300 per 100 grams showed a slight decline over 2009’s season.

* * *

A consortium led by Italian-American entrepreneur Thomas R.DiBenedetto offered to take over AS Roma, the Serie A soccer club.

* * * After 20 years’ renovations, Rome has reopened the Forum’s House ofthe Vestal Virgins.

Time To Get Serious

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A L M A N A C

Gianni Alemanno

REVIEW ITALY 15OPINIONFEBRUARY 2011

Many other changes took place over thosesame years. The European Monetary System(EMS) was established, in the second half ofthe 1980s exchange controls were removedand capital movements were completely liber-alized (by 1990), the Bank of Italy was grantednot only de facto but also de jure indepen-dence, the wage indexation system wassubstantially revised and eventually put torest, and a major currency and financial crisisstruck the Italian economy as budget deficitsand the public debt seemed to be out of con-trol. Eventually, of course, the crisis wasovercome, inflation was tamed, the publicfinances were brought under control. The reforms that Tommaso Padoa-Schioppapromoted at the end of that decade success-fully bridged the gap between Italy’s systemand that in place in the other majoreconomies. At the time [Tommaso] was deeplyinvolved in the process of European monetaryunification and soon realized that the creationof a single currency would have to be accom-panied by the institution of a unifiedmechanism for its circulation throughout theEuropean economy. A workshop that he orga-nized at the Bank’s conference centre inPerugia (SADiBa) in November 1991 revealedhow fragmented the procedures and mecha-nisms of the various European countries wereand paved the way for the payment systemagenda of the years following. From 1991 to1995 Tommaso chaired the Working Group onPayment Systems of the central banks of theEuropean Community; he resumed this pro-ject when he joined the Governing Council ofthe European Central Bank. In that positionhe promoted a revolutionary arrangement bywhich each country would delegate the large-value settlement of inter-bank transactions toa centralised system run by three centralbanks on behalf of the entire Eurosystem. Ibelieve that Tommaso’s ambition, and thefounding role that he played in this process,

from the initial ideas to the (indirect) negotia-tion of the details of the Treaty articles and theactual establishment of the Union, was exactlyto create a proper institutional set-up for anidea of Europe designed to improve the well-being of its citizens and ensure fruitfulinteraction with the rest of the world. SoTommaso Padoa-Schioppa has been widelyidentified as a (if not the) “founding father ofthe new currency,” “architect of the euro”. Ibelieve that this is proper, but I wanted toemphasise that Tommaso was also deeply con-vinced of a notion clearly expressed by JamesTobin, namely that as “Policy and structurebecome inextricably combined, their jointproduct is what matters. ... One way to alterthe operating properties of the system ... is tochange the policy rule. Another way is tochange the structure”. And it was to changingstructures that he devoted much of his intel-lectual and professional life.For several years ... he was [also] Chairman ofthe Basel Committee, where he initiated aprocess that would lead to what came to becalled the “Basel II” Accord. The regulatorysystem was built around the basic notion thatbanks should set aside capital to guard againstthe various types of risk: credit, market, oper-ational. The financial crisis has taught us thatboth the assessment of and the allowance forthese risks were vastly inadequate. Tommasorecognized this. Still, he maintained thatBasel II was definitely better than the previ-ous accord precisely because it sought tospecify in detail the various risks in bankingand to provide, through its “three pillars” con-struction, a comprehensive framework to dealwith them. He conceded that substantialchanges at the technical level of the Accordwere necessary, but he emphasized, in his PerJacobsson lecture last June, that “what reallywent wrong is on the side of the government[which] was captured by the myth that financecan regulate itself spontaneously and henceretreated too much from the regulatory andsupervisory role that is necessary to ensurestability.”To conclude, Tommaso Padoa-Schioppa was atrue leader, a man with whom it was alwaysinstructive to engage in a conversation, but atyour own risk – always with the assignment,that is, be it explicit or implicit, of producinga concrete, real-world result. His professionallife may well be compared to the work of acreative and passionate architect. He was not,and he did not pretend to be, “always right”.But, like the builders of the medieval cathe-drals that enrich Europe, he was a “man ofvision,” a believer but also a very practicalman. He worked tirelessly and effectively fora better country, a better Europe, a betterworld than the one into which he was born.Excerpts from a personal testimony at a memorial forTommaso Padoa-Schioppa, European University Institute,San Domenico di Fiesole (Florence), 28 January, 2011.

A prominent (but non-academic) economist, aleading central banker (in Italy and inEurope), a “non-political” politician (dedi-cated to the “polity” rather than to thepolitique politicienne), Tommaso Padoa-Schioppa spanned all of these professions inthe course of his eminent career. Tommaso’sachievements were substantial, as everyonerecognizes. He is rightly considered as one ofthe “architects of the euro.” A man of vision,an independent mind, an indefatigable civilservant – we have been fortunate indeed tohave had Tommaso Padoa-Schioppa as col-league, friend, mentor.He was the head of the Money MarketDivision of the Bank’s Research Departmentfrom 1975 to 1979, when he left to becomeDirector General for Economic and FinancialAffairs at the European Commission. Hereturned to the Bank in 1983, was namedDeputy Director General in 1984 and servedin that capacity for thirteen years. The threeareas comprise the “reshaping of monetarypolicy”, as he came to define it, the promotionand implementation of a ground-breakingreform of the payment system and the processof European monetary unification.Let us remember that in the 1970s the Italianeconomy was plagued by substantial nominaland real instability. High and volatile inflationrates preceded, accompanied, and followed aseries of large and sometimes sudden depre-ciations of the currency, in a context of socialunrest and substantial rigidities. Meanwhile,Italian society was racked by violent waves ofterrorism. The policy challenge was enormous,as Italy’s financial markets were very under-developed, public debt managementnon-existent, and capital flights massive. In 1981, while Tommaso was serving with theEuropean Commission, an epoch- makingregime shift took place, to which he had con-tributed directly and indirectly: the so-called“divorce” between the Bank of Italy and theTreasury. The Bank ceased to act as residualbuyer at Treasury bill auctions, the funda-mental first step towards full independence forthe Bank’s monetary policy decisions. Thiswas followed in the 1980s by a thorough trans-formation of the financial infrastructure: directcontrols were suppressed, reserve require-ments reformed, competitive-bid auctions forTreasury bills introduced, longer-termTreasury bonds (with the introduction of uni-form price auctions) and indexed Treasurycredit certificates were instituted, a screen-based secondary market was established forgovernment securities (the MTS, with theintroduction in 1994 of market specialists) aswell as a screen-based market for inter-bankdeposits (later to become the e-MID), futuresand options on Treasury bonds were launchedon LIFFE, and more. Tommaso Padoa-Schioppa contributed much of his time,energy, and vision to these radical changes.

By Ignazio Visco

Deputy Director General of the Bank of Italy.

Padoa-Schioppa: His Legacy To The EMSTommaso Padoa-Schioppa, RIP, Is Remembered By His Peers

tommaso Padoa-schioppa

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