Oct. 6 (Bloomberg) -- In the Italian mountains of South Tyrol, Luis Durnwalder wishes more of the country could be like his German-speaking province.
Two days after Moody’s Investors Service cut Italy’s credit rating for the first time since 1993, South Tyrol’s governor says the nation needs to pay off its debt to protect the euro.
“We in South Tyrol don’t have debts, we have our autonomy,” said Durnwalder, who has led the region’s government for the past 22 years, speaking from the capital of Bolzano, or Bozen in German. “The euro is working really well in South Tyrol. It would be impossible to imagine living without it.”
South Tyrol lies at the fault line between the economic stability of northern Europe and the indebted Mediterranean south. As German Chancellor Angela Merkel lectures countries such as Greece and Italy about the virtues of austerity, the southern nations are struggling to overcome decades of tax evasion and growth that trails the European average.
Italy suffers from weak economic growth making it difficult to reduce debt, Moody’s said. The International Monetary Fund estimates that Italy will expand by 0.3 percent in 2012, compared with growth of 1.3 percent for Germany. Moody’s cut Italy by three levels to A2, one below Slovakia and Estonia, the newest and poorest members of the euro.
Moody’s said in the Oct. 4 statement that the euro area is facing “a profound loss” in investor confidence as policy makers fail to halt the crisis from spreading. Italy’s rating is now five levels below the AAA standing of Germany, Austria and Switzerland.
“If you don’t do your homework then you will get downgraded, that happens also at school,” said Stefan Pan, 51, managing partner of Pan Tiefkuehlprodukte GmbH, a company in South Tyrol that makes frozen strudel, an Austrian pastry. “We need decisions within the next couple of days.”
South Tyrol is a blend of Latin and Teutonic influences, reflected by signposts in both Italian and German and restaurant menus offering sauerkraut and pork roast alongside penne pasta and lasagna. About 70 percent of people speak German, 25 percent Italian and 5 percent a local language called Ladin, according to the latest census by the local government in 2001.
The region, with its apple orchards and vineyards, was handed to Italy in 1919, occupied by Nazi Germany in 1943, and became a linguistic battleground that culminated in a bombing campaign by a German-speaking group in the 1950s and 1960s before autonomy in 1972. South Tyrol is now among Italy’s three richest provinces, based on output per capita.
Control over its own financial affairs created wealth in the province because it meant it was able to keep almost 90 percent of the tax raised there, Hans Karl Peterlini, a local author, said by telephone from his home in Bolzano.
“South Tyrol pays a lot of taxes and there is a high tax moral, so that meant there was a lot of money,” he said.
About 74 percent of South Tyrol’s economy is based on services such as tourism, while agriculture accounts for 4.1 percent, according to ASTAT figures from 2009. Its only debt results from the ownership of SEL AG, a local energy company, according to the provincial government.
While Italy’s debt pile was about 20 percent bigger than its economy in 2010, South Tyrol sticks to spending what it raises from local taxes on its 510,000 people. The region’s government predicts growth in gross domestic product of 1.7 percent this year, more than twice the rate forecast for Italy, according to ASTAT, the statistical office in Bolzano.
“We always had the attitude that at some point you have to pay your debts,” said the 70-year-old Durnwalder, who grew up on a farm. “A farmer will never spend more than he earns. Generally we also have a more Germanic mentality for saving.”
Prime Minister Silvio Berlusconi needs to respond now, according to South Tyroleans.
Italy approved last month a 54 billion-euro ($72 billion) austerity plan, including a 1 percentage-point increase in the value-added tax rate to 21 percent, a surcharge on incomes over 300,000 euros and a higher retirement age for women.
European finance ministers met this week in Luxembourg to consider further strengthening a bailout fund as Greece’s debt rises this year to 62 percent more than its economy. Member parliaments are in the process of approving the 440 billion-euro European Financial Stability Facility.
Staying on Board
With its mix of languages, trade with northern Europe and tourism spending one currency, South Tyrol is a symbol of the integration of the past 50 years. The border dispute between Italy and Austria over the region was settled in 1992 during the run up to Austria’s EU membership.
“Europe is like a big ship, so you can’t throw over board someone who isn’t performing, but at the same time if you want to be part of Europe, you need to adhere to certain rules,” Pan said from Laives, about a 15-minute drive south of the regional capital of Bolzano. “The euro creates union. It allows a cohesion that even my grandfather would not have dreamt of.”
Yields on 10-year Italian bonds reached a euro-era record of 6.4 percent on Aug. 5. The increase led the European Central Bank to approve the purchase of Italian and Spanish bonds to try to stop contagion from the debt crisis in the markets. The yield rose 3 basis points to 5.53 percent yesterday, while 10-year Greek rates stood at 23.2 percent.
“We still feel the effects of the austerity packages because our local administration needs to make cuts and that leads to worries we are being dragged from a prosperous economy into the Italian abyss,” said Peterlini, 50, the author.
South Tyrol was part of the Austro-Hungarian Empire until the end of World War I, when it was transferred to Italy. Fascist dictator Benito Mussolini initiated a program to boost the proportion of Italians living in the region, a drive that continued after World War II, triggering a campaign for self-rule in the 1950s and 1960s.
Peterlini has written books on the region, including “We, Children of the South Tyrol Autonomy” in 2003 and “The Bombing Years of South Tyrol,” a look at events such as the blowing up of electricity pylons in 1961.
Average GDP per head in the area around Bolzano was 34,600 euros in 2008, exceeding Lombardy, which includes the financial center of Milan, according to Eurostat. That compared with an average of 26,200 euros for Italy and 30,200 euros for Germany. The highest was Luxembourg on 81,200 euros.
“If the ship Italy gets in distress, then those in second class will be in distress as much as those in first class,” Durnwalder, whose South Tyrolean People’s Party has governed in the region since 1948, said by telephone.
While saying Italy is in better shape than Greece, he raised doubts about Berlusconi’s ability to solve his end of the crisis. The 75-year-old premier is on trial for paying for sex with an underage exotic dancer, along with separate cases alleging tax fraud and bribery. He denies any wrongdoing.
“I just have been in Nepal and on the border when they saw my passport instead of saying ‘buongiorno’ to show that they speak Italian, they said ‘bunga bunga,’” said Durnwalder “That is really not an international reputation.”
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