Bribesville Revisited: Italy’s Recovery Stained by Legacy

Photographer: Alessia Pierdomenico/Bloomberg

Matteo Renzi, Italy's prime minister. Close

Matteo Renzi, Italy's prime minister.

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Photographer: Alessia Pierdomenico/Bloomberg

Matteo Renzi, Italy's prime minister.

Matteo Renzi took little comfort from the prospect of Italy’s best growth performance in three years when he visited its business capital this week.

The prime minister used his trip to Milan yesterday to limit the fallout from a spate of corruption arrests rather than marking the progress of a fledgling recovery that probably strengthened in the first quarter. Economists predict data for that period due tomorrow will show growth of 0.2 percent after Italy limped further out of the record-long recession it suffered through most of last year.

The Expo 2015 event at the center of the police probe is a linchpin of Renzi’s plan to revive the euro zone’s third-biggest economy. It is also intended to nurture a jobs boom in Milan and showcase Italy’s potential at a time investors have pushed the country’s bond yields to record lows. Instead, the attraction risks providing a reminder of long-term malaise in the same city where the so-called Bribesville scandal of the 1990s erupted and went on to destroy the nation’s post-war political system.

“Big international events like the Expo whet the appetites of politicians and the corrupt,” said Carlo Alberto Carnevale Maffe, a professor of strategy at Bocconi University’s School of Management in Milan. “The Expo was an act of narcissism typical of the pre-financial crisis era, but I think in the end it will come through.”

Clean Hands

The global trade fair in Milan might boost Italian gross domestic product by 10 billion euros ($14 billion), or 0.6 percentage points, and add 200,000 jobs through 2020, according to a forecast by Bocconi University’s SDA business school. That would provide a welcome boost to an economy that has endured 15 quarters of contractions since the start of 2008.

“Milan will overcome the Expo challenge just as Italy will emerge from fear and desperation,” Renzi said yesterday during his visit to the event’s headquarters. “If we succeed with the Expo, we can prove what Italy is capable of.”

Milan outbid Turkey’s Izmir six years ago to host the 1.35 billion-euro attraction, which hopes to bring in 21 million visitors to the north Italian city and has been heralded as a symbol of economic resurrection.

Last week’s arrests have stained that ambition. Milan prosecutors detained the Expo’s contracts manager Angelo Paris and jailed five other people in a probe that ensnared former lawmakers and alleged a system of bribes to secure contracts. Some of the accused had already been arrested in the so-called Clean Hands probe as part of the Bribesville scandal 20 years ago, which led to the final conviction of dozens of executives and party chiefs including former Prime Ministers Bettino Craxi and Arnaldo Forlani.

Open Door

“The real reason for dismay is that these people are still welcome within the institutions,” former anti-bribery magistrate Antonio Di Pietro, who led the Clean Hands investigations, said in an interview. “It’s like the head of a bank branch opening the door to a thief.”

While Italy has introduced laws to battle political payoffs since the scandals of the 1990s, corruption and misuse of public expenditure cost the state 5 billion euros last year, the financial police said in January. The CGIA Mestre research group estimates graft could swell the cost of public works by 90 billion euros in the three years starting in 2013.

Renzi, who has been in office since February, is counting on growth outperforming forecasts this year to help Italy stick to European Union budget rules and cut near-record unemployment. Even so, industrial production fell for a second month in March, signaling that the economy is struggling.

Downside Risks

“A slow recovery remains on track going into the second quarter, but we acknowledge that risks are now skewed to the downside,” said Fabio Fois, an economist for Barclays Plc. “A weaker than anticipated domestic demand contribution may weaken the current projected economic outlook.”

Italy’s statistics agency is due to announce the latest GDP data at 10 a.m. in Rome tomorrow. It will show an increase that is twice the 0.1 percent gain in the fourth quarter of last year, according to the median of 21 economist forecasts in a Bloomberg News survey. An hour later, the European Union’s statistics office will probably say that euro area grew 0.4 percent in the same period, according to a separate survey.

Italy’s lag behind the 18-nation currency bloc is likely to continue next year, with the country’s GDP seen advancing 1.2 percent and the euro area’s at 1.7 percent, according to the European Commission.

Jewel in Crown

That same year, Expo 2015 will start with only half of the promised infrastructure and works completed. Only one out of three new planned underground rail lines will be ready while a canal project linking central Milan with the exhibition area on its outskirts, one of the highlights of the city’s candidacy bid, will be scaled down. The probe is focusing on alleged bribes to assign three contracts for the Expo. Paris’s lawyer Luca Troyer didn’t return two calls and an e-mail seeking comment. Sergio Cattozzo, a former UDC party member, is answering all prosecutor questions in the interrogations, his lawyer Rodolfo Senes said.

Renzi yesterday reiterated the government’s commitment to Expo and named Raffaele Cantone, the head of the national anti-corruption authority, to clean up the trade fair with the help of a task force of lawyers and contract specialists. A new head of contracts for the Expo also was announced following the premier’s meeting with the trade fair’s board.

The Expo “must become the jewel in the crown of our country,” Renzi said. “Those who rob must be stopped. Public works must not.”

To contact the reporters on this story: Marco Bertacche in Milan at mbertacche@bloomberg.net; Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Jerrold Colten at jcolten@bloomberg.net Zoe Schneeweiss

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