Ratings agencies may have been roundly (and rightly) booed over the past few years for the deep flaws in their work, but markets and governments still pay attention, especially when ratings for weak economies are downgraded. For 'PIGS' countries –– Portugal, Ireland and Italy, Greece and Spain -- this is no laughing matter, so while Standard & Poor's may have confirmed Italy's A+ rating for long-term debt (treasury bonds), they cut the economic outlook evaluation from 'stable' to 'negative'. S&P pointed out that domestic demand is weak, and growth has virtually flatlined, with a first quarter 0.1%.
S&P's greatest fear appears to be "political gridlock", that Italy's government won't be able to carry out necessary 'structural reforms'. Now, leaving aside the fact that 'structural reforms' have been abandoned --at least officially-- by even the IMF as the answer to economic woe, S&P's analysis does leave one wondering which rock they've been hiding under for the past 17 years: if there's one constant of Berlusconi's governments it's that he hasn't given two hoots about things like the economy or foreign policy, so long as he can take care of (his own) business. It's no wonder that Italy's reputation in both areas lies in tatters. As does the economy.
Case in point: tax evasion. Last year, the governor of Italy's Central Bank said in a press conference that tax evasion was responsible for the ‘social butchery’ in Italy over the past few year, putting the total value of unpaid taxes at around €120bn, i.e. five times last year's 'emergency budget', while the likelihood of actually having to pay up if you do avoid taxes is a derisory 0,00016%.
So, let's take another look at tax evasion one year on. While the national average is 13.5% of unpaid taxes, averages vary substantially between the South, the Centre and the North, with the latter two evading 14.5% and 17.5% respectively, while the South clocks barely half that at 7.9%. But the most significant differences come across professions: pensioners may be over-paying to the tune of 7.7%, but independent workers more than compensate for this 'excessive honesty', with the self-employed businessmen declaring 56.3% less than their real earnings, and rentiers (land and property) a whopping 83.7% less.
And what is Berlusconi doing about all this? Well, he has stated twice as a serving Prime Minister that if taxes are 'too high' then people have a moral right to avoid paying them.
No wonder Italy is a mess.