“Holding their feet to the fire” is a phrase often used to describe Germany’s approach to managing the Euro crisis and in particular forcing reform on the Southern European countries. The argument is that economies such as Italy’s will not reform outside the deepest of crises.
The reform of the Italian Post Office may be an example. The Italian government began discussions of a partial sale of Poste Italiane earlier this month with an initial objective to sell possibly 40% of the organisations holding company through some sort of IPO, possibly by the end of this year. It has been estimated that this could realise around €6bn.
The nature of the sale is unclear. It has been suggested that rather than selling equity to private investors the Italian government might use a public sector pension funds or savings institutions to purchase the stake. If true this would have profound implications for the strategic direction of Poste Italiane. It would imply hostility to any fundamental change of ownership and, possibly, to any significant change of strategic direction.
Although the Italian state has a comparatively low annual budget deficit its overall level of indebtedness has been risen beyond 100% of Gross Domestic Product as the economy has shrunk. Yet Italian governments have been reluctant to sell what is a large portfolio of assets ranging from the likes of Poste Italiane to a controlling stake in the oil and gas company ENI. One problem with Poste Italiane however, is that it has been receiving a subsidy from the government of €990m to cover pension payments. This sum would other wise account for a large proportion of the organisations annual operating profit in 2012 of €1.4bn. Not only is this a drain on government revenue but it may also be questionable in terms of European Competition rules.Such regulatory hurdles may accelerate the requirement to sell, however it appears that the Italian government has less appetite for the sort of strategic transformation that the Royal Mail Group is aiming for. Bearing in mind the transformative growth that the likes of Royal Mail have been experiencing this may be a missed opportunity, although one that is indicative of Italy’s structural economic failure.