5

Federal Reform: The End of the Beginning or the Beginning of the End?

Emanuele Massetti

On 28 July 2011, Roberto Calderoli, minister of the simplification of laws and regulations and a leading figure of the (LN, North- ern League), announced that “the implementation of the federalist reform can be considered, for its most relevant part, accomplished” and that “federalism becomes a completed and transparent system, as it had never been: a true federalism of which all citizens will feel the effects.”1 On 11 August, Roberto Formigoni, the regional president of , a leading figure of the Popolo della Libertà (PdL, People of Liberty) and a strong advocate of fiscal federalism, declared: “Fiscal federalism has lost all its substance; it does not exist anymore.”2 These two contradictory statements are emblematic of the subject under discussion because they highlight two key points. First, while 2011 was supposed to be the crucial year for the completion of the legislative process on fiscal federalism, the fate of the reform is far from clear. Second, the reform remains deeply controversial from a political point of view, not only because of its substance, but also due to the propagandistic struggle it has given rise to. These two points are reinforced by the fact that the above dissension does not refer to a government-opposition disagreement or a North-South division: the two politicians are from the same region (Lombardy), both are strongly

Italian Politics: From Berlusconi to Monti 27 (2012): 137–154 © Berghahn Books doi:10.3167/ip.2012.270108 138 Emanuele Massetti pro-reform, and both were part of the coalition that supported ’s government until its fall on 12 November 2011. The main aims of this chapter are to provide some basic details on the content of the legislation, to explore its strengths and weak- nesses, to advance explanations about the latter, and to provide some informed speculation on its fate. The chapter is organized as follows. First, a brief summary of the “federalization” process of is pre- sented, up to the approval of Law No. 42/2009, which initiated the current reform. Second, the content of the most salient legislative decrees approved in 2011 are analyzed. Third, an explanation of the outcome of the reform and, in particular, of its apparent shortcomings is presented. The main argument developed is that a party politics perspective can help us understand what may appear, from a pub- lic policy point of view, as a series of contradictions between stated objectives and actual legislative provisions. Finally, the chapter con- siders the likely fate of federalism in Italian politics, both in its institu- tional and fiscal dimensions.

The Politics of Territorial Reform in Italy and Fiscal Federalism

The issue of regional autonomy and, more generally, of the center- periphery allocation of powers and resources has always been very important in Italian politics. The 1948 Constitution tried to settle the question by introducing a regime of asymmetric regionalism in which special-status regions (RSSs)—the main islands (Sicily and Sardinia) and three border regions with linguistic minorities (Trentino-Alto Adige, Valle d’Aosta, and Friuli-Venezia Giulia)—were granted exten- sive autonomy and the immediate creation of elective regional repre- sentatives, while the remaining “ordinary” regions (RSOs) were left to wait for legislation in order to elect their representative governing bodies and to take up a limited set of (mainly administrative) com- petencies. The delaying of such legislation and the “South Tyrolean question”3 kept the issue of territorial reforms in the political debate until at least the early 1970s. It is only in the so-called Second Repub- lic, however, that territorial reforms and the idea of federalism become central, permanent, and (at least superficially) widely supported points in the political agenda. This qualitative shift has a precise origin: the breakthrough in 1992 of a new political force, the LN, in the national party system; its persistence, between highs and lows, as a relevant actor ever since; and the reactions of the other parties to it. A good understanding of the League’s political style, ideology, objectives, Federal Reform 139 strategy, and tactical choices is therefore crucial when examining fed- eral reforms in Italy. As noted by Lieven De Winter,4 the policy success of regionalist parties is often due not so much to their direct legislative activities but to their capability to affect the political agenda by pushing statewide parties to pass territorial reforms. The history of the LN up to 2008 appears to confirm this general trend. Indeed, although they were not directly passed by the LN, the reforms undertaken between 1997 and 2001 are remarkable. The Bassanini laws (1997–1998) clarified and reinforced the sub-national institutional competences. The reform of the regional electoral law (1999), including the direct election of the regional president, strengthened the regions from a political point of view. Finally, the 2001 constitutional reform recognized regions and local governments as constituent parts of the Republic (new Art. 114), increased the legislative competences of the regions by listing those reserved to the state and those under shared competence (new Art. 117), opened the way for further devolution of powers to any indi- vidual regions making requests in that respect (new Art. 116), and prescribed the implementation (under the constraint of national soli- darity) of financial and fiscal autonomy for the regions and the local governments (new Art. 119). As regards the question of financial and spending autonomy, the regions had already made considerable prog- ress before the 2001 constitutional reform. The establishment of the regional tax on production activities (IRAP) in 1997 gave the regions a substantive source of revenue, although the level of the tax remained under the state competence. Moreover, the regions obtained for the first time a share, albeit a limited one (0.5 percent), of income tax (IRPEF). Of greater significance was the reform adopted in 2000 that introduced a share of VAT and of the fuel tax, as well as an increase in the share of IRPEF up to 1.4 percent. These new revenues freed the regions from most direct transfers from the state, ensuring a very large degree of freedom in the allocation of regional spending. As the main advocate of territorial reforms, the League must of course take an important share of the credit for the changes intro- duced. On the other hand, it must be noted that the LN not only strongly criticized those reforms but also, when it had been part of the governing coalition (in 1994 and from 2001 to 2006), never succeeded in getting its own proposals passed. This seems to have represented a huge problem for the party, which since its foundation has promised to lead and deliver (and not simply to stimulate and control) the “federal revolution.” It has become rather evident in the last 10 years that the League is eager to present itself as the only party capable of bringing about real territorial reforms, at least as much as it is interested in the 140 Emanuele Massetti

content and likely impact of such reforms. In view of this, it is rather paradoxical that the LN opposed the 2001 constitutional reform, even calling for a referendum to reject it. It is also interesting to note that the “reform of the reform” (the so-called devolution reform) voted for by the League together with the center-right coalition (2001–2006)— and then rejected by voters in a June 2006 referendum—would have not represented a major step forward toward regional empowerment. Indeed, while this reform tried to provide the regions with exclu- sive legislative powers in health, education, and local policing, it also envisaged the recentralization of competences in other important areas. First, the exclusive power over transport and national distribu- tion of energy would have gone back to the state. Second, the principle of “national interest,” allowing central institutions to block regional laws, would have been introduced. Third, the possibility for regions to negotiate individually for further devolution of powers would have been abolished. Finally, at a more symbolic level, a new territorial unit called “Rome Capital City” would have been created and the principle of “national indivisibility” explicitly stated. When the League returned to office after the 2008 general election with its best general election result since 1996, its key policy proposal was fiscal federalism.5 On the one hand, this stated policy represented a sort of return to the LN’s roots, as the party’s earlier electoral suc- cesses in the 1990s were built on a policy platform advocating fed- eralism. On the other, it is also worth emphasizing that, in spite of more or less substantive tactical shifts—from federalism to “Padanian secession” and then from the latter to “devolution”—the objective of retaining resources in the productive and rich regions of the North has always remained at the center of the League’s political action (or at least of its rhetoric). As a matter of fact, a look at regional finances shows, as largely expected, considerable differences across Italy. Yet it must be noted that such differences concern not only the divide between North and South, but also, and perhaps more importantly, the one between RSOs and RSSs.6 For instance, beyond the presence of huge gaps in fiscal capacity and, as a consequence, important inter- regional financial transfers, the political debate has also concerned the quality of regional spending. The League’s discourse has pointed to the putative inefficiency of regional spending in southern, net-receiver regions. While a full assessment of spending efficiency would require not only an assessment of regional spending but also an evaluation of the quality of services provided, what emerges from the data on spend- ing allocation is that the most striking difference is again between RSOs and RSSs, rather than between North and South. For instance, the cost of the salaries of all regional staff comes to 13 percent of the Federal Reform 141 total spending of RSSs, while RSOs manage to cover it using only 3.5 percent of their spending. This is not surprising if we consider that RSSs employ 48 percent of all regional staff in Italy, despite the fact that their total population represents only 15.2 percent of the national total. Clearly, the argument that RSSs need more staff because they have more competences does not appear to justify fully this spending gap. This brief overview of the existing inter-regional differences in terms of financial self-sufficiency, redistributive fluxes, and quality of spending (to which we should add the gap in central state spend- ing across various regions) helps us to understand how much is at stake in a reform that aims to disturb the status quo of regional finances and spending, especially if the game is run by a regionalist party like the LN. While hopes of gains are raised in wealthy (mostly northern) RSOs, serious fears are engendered in worse-off (mainly southern) RSOs, while worries regarding the maintenance of privi- leged positions emerge in RSSs (both northern and southern). These expectations and concerns were confirmed at the start of the new parliamentary term, when the League presented a very audacious proposal that would have radically reduced financial transfers from richer to poorer regions. In fact, the envisaged change was so extreme that it was expected to leave some southern regions without enough funds to cover basic costs.7 The LN’s proposal was quickly replaced with one that was more palatable for the PdL and in line with Article 119 of the Constitution. This new proposal became law in May 2009 (Law No. 42/2009). The law outlined the timing, principles, objectives, and guidelines (both substantive and procedural) for the implementation of fiscal federalism, which was to be carried out through legislative decrees. The key principle of the reform was the establishment of a tighter link between taxation and the provision of services at the territorial level within a framework of national solidarity. The main objectives were, first, to increase the financial and fiscal autonomy of regions and local governments and, second, to improve efficiency in the provision of services and thus to create savings in public spending. To achieve the latter, the law relied on the concept of “standard cost”—an efficient level of spending for a given service that should be applied uniformly throughout the country. The law also prescribed a system of rewards (e.g., an increase in tax-varying powers) and of punishments (e.g., a halt to staff recruitment). The procedure for the adoption of legislative decrees prescribed the establishment of a Bicameral Commission that would examine and approve the legisla- tion, in consultation with representatives of the regions, provinces, and local councils. Additionally, the law called for the creation of 142 Emanuele Massetti

new institutions, such as the “permanent conference for the coordi- nation of public finance,” which would include representatives from all levels of government. Overall, the law and its major proponents, including the finance minister, (a member of the PdL, but widely considered very close to the LN), promised to pro- duce an ambitious reform that would tackle many of Italy’s structural problems—in particular, public spending inefficiency, low political accountability, excessive cross-regional financial redistribution, and excessive tax burdens.

The Content of the Reform: Strengths and Weaknesses

The legislation process initiated by Law No. 42/2009 has been largely completed, with the approval of eight legislative decrees. However, crucial technical details have been left unspecified and postponed to future governmental (non-legislative) decrees and regulations. In addi- tion, the present legislation needs constantly to integrate with macro- economic provisions (budgets, fiscal reforms, internal stability pact, etc.). The approved legislative decrees concern the following: (1) the transfer of state property (Legislative Decree No. 85/2010, approved on 28 May 2010); (2) special jurisdiction for Rome as the capital city (Legislative Decree No. 156/2010, approved on 17 September 2010); (3) the “standard requirements” of the local governments (Legisla- tive Decree No. 216/2010, approved on 26 November 2010); (4) the financial and fiscal autonomy of local councils (Legislative Decree No. 23/2011, approved on 14 March 2011); (5) the funding auton- omy of the regions and provinces, plus the identification of standard costs and requirements for health services (Legislative Decree No. 68/2011, approved on 6 May 2011); (6) the equalization and removal of imbalances (Legislative Decree No. 88/2011, approved on 31 May 2011); (7) the harmonization of accounting systems (Legislative Decree No. 118/2011, approved on 23 June 2011); and (8) rewards and sanc- tions for regions, provinces, and local councils (Legislative Decree No. 149/2011, approved on 6 September 2011). The chronological order tends to reflect, inversely, the level of tech- nical complexity and political controversy of the subject, with the decrees approved in 2011 being the most relevant. Legislative Decree No. 68/2011, which has been commonly called “regional (fiscal) feder- alism,” arguably represents the core of the reform. Not only does it con- cern the regions, the most important sub-state level of government from both an institutional and a financial perspective (their budgets being about double those of the provinces and local councils combined), but Federal Reform 143 it also addresses the provinces and, most importantly, the rationaliza- tion of spending on health—by far the largest area of regional spending. Before being issued in early May, the decree obtained the consent of the Conference of the Regions (which had previously threatened to oppose it)8 and broad support in the Bicameral Commission with 15 votes in favor (11 PdL, 3 LN, 1 SVP), 10 no preferences (PD), 4 votes against (2 UdC, 1 FLI, 1 IdV), and 1 absentee (ApI).9 Although the more southern statewide parties (UdC, FLI, IdV) opposed it, the lack of oppo- sition from the regions and the Partito Democratico (PD, Democratic Party) suggests that a compromise was reached. Indeed, as shown in table 5.1, the provisions are far from being revolutionary. First, fiscal autonomy is gradually increased, but with important constraints. Some powers, such as lowering IRAP, are likely to remain on paper for most, if not all, regions. Also, despite assurances made by the reform’s main proponents (headed by Tremonti) that overall taxation will not increase, the new fiscal powers of regions are likely to lead precisely to that outcome. Secondly, shared taxation replaces state transfers, thus ensuring, in theory, full financial autonomy. However, given current austerity measures, strong doubts remain regarding the real amount of resources to be replaced (e.g., the approval of the decree by the Conference of the Regions was conditional on limiting cuts that had been decided on in the 2010 budget). It is worth noting that this last point also reinforces fears that regions will be forced to use their new fiscal powers to compensate for current and future revenue cuts, thus increasing the tax burden for citizens. Thirdly, in line with Article 119 of the Constitution, the decree prescribes high levels of inter-regional solidarity.10 The equalization fund aims to guarantee to all regions full coverage of basic services (health, education, and local transport), which amounts on average to about 80 percent of regional spending. In addition, high levels of national solidarity are strengthened by the provisions of Legislative Decree No. 88/2011, which restates the objec- tive of economic convergence between regions and the willingness to achieve this through direct investments (especially in infrastructures) of state and EU funds in underdeveloped areas. Hopes for retaining more resources in northern productive regions, strongly fostered by the League’s rhetoric and promises, are therefore likely to be largely unful- filled. Perhaps more importantly, solidarity presents evident trade-offs with the idea of a close relationship between resources raised and ser- vices provided in a given territory. More generally, it goes against the (largely neo-liberal) principles of “competitive federalism”—manage- rial, economic, and fiscal competition among territorial units that have the same institutional powers—with which the reform has been often linked (and not only by the LN). 144 Emanuele Massetti

TABLE 5.1 Key Changes Introduced by Legislative Decrees on Fiscal Federalism

Level of Lesiglative Government Decree Main Provisions

Regions Mainly Fiscal powers: (RSOs) No. 68/2011 • Gradual increase in income tax raising powers over the fixed share (0.5% in 2013, 1.1% in 2014, up to 2.1% by 2015). • Power to lower the regional tax on production activities (IRAP), but only if income tax is not raised by more than 0.5% • Tax on cars and other minor taxes are transferred to regions. Financial autonomy: • Abolition of all current transfers from the state and of share on fuel tax. • Recalculation of regional fixed share of income tax (currently at 0.9%) to compensate for the abolition of state transfers. • Introduction of a regional fixed share of VAT (to be calculated according to inter-regional balancing needs). • Revenues recovered from tax evasion to be kept in the region. Inter-regional solidarity: • Establishment of an equalization fund (based on regional VAT revenues). • The fund will ensure 100% coverage for basic services and 75% for other services. Efficient spending on health services: • Standard cost: per capita weighted average spending in three “virtuous” regions (i.e., regions with balanced budgets) from different geographical areas. • Standard requirement (for each region): percentage of the (exogenously determined) national health budget, determined by multiplying the standard cost by the weighted regional population.

Provinces Mainly In theory, the following norms should be taken as No. 68/2011 transitory since provinces are due to be “either suppressed or rationalized” (Art. 16, comma 1): • Financial transfers from the state and from the region are abolished. • Provincial share of the tax on electric power is abolished. • Tax on car insurance is determined by the state (12.5%) but collected by provinces that also have tax-raising powers up to 3.5%. • Provincial fixed share of income tax will be recalculated to compensate for the suppression of transfers. • Provincial fixed share of tax on cars is introduced (exact level to be calculated). • Inter-provincial (regional) rebalancing fund, formed by 30% of revenues collected by tax on cars. Federal Reform 145

TABLE 5.1 Key Changes Introduced by Legislative Decrees on Fiscal Federalism (cont.)

Level of Lesiglative Government Decree Main Provisions

Local Mainly • Confirmation of the abolition of the tax on “first homes” councils No. 23/2011 (ICI). • Introduction of a new tax on property, called IMU, applicable to “second homes” (0.76%) and rented properties (including those for industrial/commercial purposes). • Councils will collect a fixed-rate tax (21.6%) on revenues from rented properties. • Regional transfers to be suppressed by 2013 (Leg. Decree No. 68/2011); a council share (to be determined) of the regional share of income tax will be introduced instead. The councils’ direct share of income tax is reduced to 0.04%. • Council share of VAT (to be determined) and 30% of taxes on property sales are to be introduced. • Standard requirements for basic services are to be gradually introduced (Leg. Decree No. 216/2010) • Inter-council rebalancing fund, based on taxes from property sales (Leg. Decree No. 68/2011).

Source: Author’s elaboration on the basis of the cited decrees.

The question of efficiency and rationalization of health spending deserves special attention, as this was presented as one of the main pil- lars of the reform and has been an issue of strong political contention.11 Before discussing the technical aspects, it is again worth noting that the approach of setting efficiency criteria from the center, coupled with the provisions of Legislative Decree No. 149/2011 (rewards and sanctions for the administrators), reveals a “statist” vision and falls very far from the principles of “competitive federalism,” which would rather place its trust in the rewarding or sanctioning capability of regional political markets—as in the mantra “I see, I pay, I vote” used by Tremonti to defend and advertise the reform. However, most of the criticism has focused on criteria chosen to identify “standard costs” and, especially, the passage from “standard costs” to standard requirements. First, the three “virtuous” regions taken as benchmarks are selected primar- ily on the basis of budget balance, which is not a guarantee of either efficient spending or the quality of services. Second, the fact that the national standard requirement is determined exogenously and that regional standard requirements are identified as shares of the national one reduces the standard cost to a mere arithmetic multiplier, with no impact on the percentage of the national health budget given to the 146 Emanuele Massetti region. According to analysts, rather than leading to more efficiency, the new legislation would open the way for health spending cuts,12 or it could even create dynamics whereby the least virtuous administra- tions would be rewarded.13 The last, but definitely not least, issue concerns the lack of politi- cal will, or perhaps of political courage, to redefine the relationship between RSOs and RSSs. The most important provisions of the leg- islation do not apply to the RSSs. In this sense, the reform represents a missed opportunity.14 Indeed, besides maintaining some privileges that have perhaps lost their raison d’être, RSSs would continue to avoid central oversight of their expenditure by escaping transparency practices. In fact, Law No. 42/2009 (Art. 27) envisages, although in rather ambiguous terms, a gradual implementation of the norms of the reform to the RSSs. Yet for the time being, they have avoided the application of the most disadvantageous or constraining provisions. In addition, through appeals to the Constitutional Court and bilateral negotiations with the state, two of these regions—Trentino-Alto Adige and Friuli-Venezia Giulia—have secured the fiscal powers devolved by the present reform with the important additional privilege of being able to ignore the constraints (except the maximum rise in tax levels) affecting other regions.15 In other words, while the state has demanded transparency, efficiency, and quality from RSOs, with a view to limiting public spending, it has increased the privileges of (some) RSSs with- out the possibility of checking their efficiency or the correspondence between their revenues and particular competences. Clearly, the political costs (e.g., the strength of the Sicilian faction of the PdL, the importance acquired by the SVP since the fall of 2010 in both the Bicameral Commission and Parliament, and the possibility of electoral losses in RSSs), coupled with the constitutional protec- tion that these regions enjoy, have prohibited efforts to strip back RSS privileges. The reform also presents some problems regarding local governments (provinces and local councils). As far as provinces are concerned, a very ambiguous attitude can be discerned: on the one hand, they are considered on the verge of being abolished (or exten- sively restructured); on the other, new rules for their funding are none- theless being introduced, since the League was utterly opposed to their suppression. Leaving aside the economic and financial implications of the abolition of the provinces,16 the real question, which the League has never genuinely addressed, is that of the incompatibility of pursu- ing a (region-based) federalist vision and a localist one. Concerning the local councils, it is worth noting that the approval of Legislative Decree No. 23/2011 was very controversial. The initial proposal was revised in order to obtain the agreement of the National Association of Federal Reform 147

Italian Municipalities (ANCI), but it did not create sufficient consen- sus. Although the government accepted further revisions (in particular, the introduction of the councils’ share of VAT), the opposition parties remained unconvinced and were determined to use this particular issue against an ever-weaker government.17 As a result, the 3 February vote in the Bicameral Commission was tied with 15 votes in favor (PdL, LN, and SVP) and 15 against (PD, UdC, IdV, FLI, ApI). The government decided to interpret this as not constituting a vote “against” and so tried to issue the decree anyway, but it was dramatically stopped (not for the first time) by the president of the Republic.18 The decree was eventually issued a few weeks later after its approval by both chambers of Parliament (with a confidence vote in the lower house).19 As regards the content of the decree, beyond persistent ambiguities concerning the balancing system and a lack of coordination with the overall (national) fiscal system,20 the great question mark centered on the abolition of the tax on residential properties (ICI). This tax had represented, until its suppression in 2008, the most important source of revenue for local governments. The decree confirmed its suppression and introduced a new tax, called IMU, to compensate partially for the disappearance of ICI and the share of income tax on property values. IMU represents a new tax for businesses, as it will also be applied to industrial buildings. In addition, IMU was meant to be applied only to “second homes,” which in many cases are owned by people living in different towns, thus breaking the link between local taxation and local representation.21 It is worth pointing out, however, that the new Monti government immediately reintroduced the tax on “first homes,” includ- ing it in the IMU and thus triggering protests from the League, which saw the new tax attached to a name (IMU) associated with the reform advocated by the party. Indeed, by 19 December, some LN mayors were threatening a tax boycott.22 All in all, and in spite of the amount of work and time spent in this enterprise, it could be argued that the reform represents only a mod- est step in the direction of fiscal federalism.23 In any case, its enduring effects will become clear only in the long term and will also depend on the solutions devised for the many remaining question marks in the current legislation. In this respect, the distance between the gov- ernmental rhetoric—especially that of Tremonti and Calderoli—and the actual profile of the legislation was considerable. In addition, the negative consequences of combining the reform with attempts to pursue austerity programs have already emerged. Independent media reports appear to confirm the fear that the reform will result in tax increases at all (sub-state) levels of government in order to compen- sate for spending cuts enacted at the central level.24 148 Emanuele Massetti

Between Party Politics and the Unfolding Crisis

The shortcomings of the reform can be attributed to two combined elements that can be roughly identified as the dynamics of party poli- tics and the unfolding financial/economic crisis. The former can be divided into three main elements: (1) the intrinsically centralistic ide- ology (or tendency) of the PdL-LN coalition and its most prominent politicians; (2) the territorial dimension of coalition politics and of the recent changes in the party system; and (3) the political style of the LN, which is characterized by a propensity for “simulative politics.”25 Notwithstanding the continuous official advocacy of federal reform since 2000, the intrinsic attitude within the center-right Italian coali- tion, and especially within that which won the 2008 general elec- tion, has always been hyper-centralistic. The adjectives “official” and “intrinsic” clearly refer to a gap between what these political parties and their main leaders have said and what emerges from their actual decisions and common practices. For some parties, the gap is minor. The Alleanza Nazionale (AN, National Alliance) and its leadership were always a manifestly centralist and statist political force. The party unwillingly accepted federalism as a central objective of the coalition, and its determination to limit or water down reforms has been only vaguely disguised, especially before its merger with (FI). More ambiguous is the position of Berlusconi and the par- ties that he has led—FI and, since 2008, the PdL. As the leader of the whole coalition and the guarantor of the “pact” between the center- right statewide parties and the LN, Berlusconi is the one who de facto accepted the imposition of federalism as a strategic policy objective. Yet his political culture, as far as one can understand from the way that he has managed his own parties and from his constitutional preferences,26 does not reflect federalist ideals and principles. The same conclusions can be drawn by looking at the actions of Berlus- coni’s governments. After having cut financial resources to regional and local governments in the 2001–2006 period, his current admin- istration immediately abolished the municipal councils’ most impor- tant source of revenue (ICI), suspended the tax-raising powers of the regions on income tax, and did not engage in further devolution of powers to those regions—Lombardy, Veneto, and —that, in line with Article 116 of the Constitution, had advanced requests in that respect. Even more contradictory is the position of Tremonti. Although he was regarded as the major link between Berlusconi and the LN’s leader, , and actively defended the League’s project as the best solution to many of Italy’s structural problems, he is directly responsible for the above-mentioned cuts to local and Federal Reform 149 regional administrations. It is not by chance that, after a decade in which the regions’ own taxes represented the majority of their rev- enue, since 2009 state transfers have gone back to being the most important source of regional budgets.27 Even the LN is not completely contradiction-free. Indeed, it could be considered the most ambiguous political actor. On the one hand, since at least 1992 (with the exception of the period 1996–1999, dur- ing which it advocated independence for ), the League has made federalism its key policy issue. On the other hand, the party has done little to stop government cuts to local and regional finances. Most importantly, the League’s strategic choices concerning politi- cal alliances have not given priority to the achievement of federalist reform. In order to expand on this last point, it is necessary to discuss the second factor mentioned earlier, namely, the territorial dimension of coalition politics and recent changes in the party system. Although both the main center-right (PdL) and center-left (PD) parties are state- wide political forces, their territorial concentration of votes is rather different. The former is particularly strong in northern and southern regions, while the latter has its strongholds in central Italy (counting Emilia-Romagna as “central”). Therefore, a reform that aims to reduce financial transfers from the rich (mainly northern) regions to the poor (mainly southern) regions by promoting more efficient spending in the latter is particularly costly in political terms for the PdL (given its key southern component). The PD would also suffer from the adoption of this policy, but to a lesser extent as its key territorial areas of support would neither win nor lose substantively. In other words, the League’s strategic choice to ally itself with the center-right appears mainly dictated by (a) availability (allying itself with the center-left was not a viable option); (b) proximity on policy areas such as taxation and immigration; and (c) the accessibility to government provided by the alliance. Indeed, this alliance has allowed the LN to pursue its pre- ferred policies and propaganda in areas such as loose fiscal controls, anti-tax rhetoric, tighter legislation for legal immigration, criminaliza- tion of undocumented immigration, and rhetorical opposition to both multiculturalism and integration, but it has proved rather counterpro- ductive for the achievement of federalism. The debate on fiscal federalism has proved too controversial for the PdL, which in the fall of 2010, precisely during the drafting of the most relevant legislative decrees, suffered a crucial split. The PdL’s co-founder, , and several dozen members of Parliament left both the party and the government to form the FLI. In addition to significantly reducing the government‘s parliamentary majority, this split changed the power balance in the Bicameral Commission 150 Emanuele Massetti

on fiscal federalism, leaving the government in a minority position (or, at best, considering the negotiated support of the SVP, with an equal number of members as the opposition). It therefore became even clearer that all decrees approved by the commission would have to be the result of compromises. Although it would be simplistic to interpret Fini’s move exclusively in terms of territorial politics, his call in his foundational speech for a “federalism inspired by solidar- ity” led several observers to speculate on the self-positioning of the new party as an advocate of southern interests in opposition to the LN.28 Under these conditions, the LN had to accept that an incisive, not to mention revolutionary, reform could not be passed. The party had only two possible options: either leave the government with no policy achievements on federalism in its pocket (while maintaining an uncompromising image), or try to complete the legislation process and bring home a symbolic, although scarcely substantive, success. The League tried to resolve the matter in its own way. Until the fall of the Berlusconi government, the party continued to present its reform as something that would change the Italian political system and the lives of Italians for good. However, following the formation of the Mario Monti government, with the League as the only party firmly in opposition, the LN shifted from the increasingly less credible simula- tion of the “historical reform” to the already tested simulation of an “independent Padania” with its own “Parliament of the North.” One of the main reasons why the simulation of the historical reform had become unsustainable was the unfolding financial/economic cri- sis and the measures introduced by the government to tackle it. The above-mentioned centralist tendencies emerged very clearly in the revisions to the budgets adopted in 2010 and 2011. In 2010, about 60 percent of the total spending cuts decided by the government, which were scheduled to be implemented over the next three years, con- cerned state transfers to sub-national institutions. Although it was not openly acknowledged by governmental leaders, it became imme- diately evident that those cuts would not be compensated for by the new arrangements.29 Even more devastating, both symbolically and materially, were the two revisions made in the summer of 2011. From a symbolic point of view, they represented a clear betrayal of the spirit of the new reform, which prescribed cooperation between different levels of government in determining public finance policy. The “permanent conference for the coordination of public finance,” as envisaged in Law No. 42/2009, was never created, and the government did not involve the regions and local administrations in the drafting of the revisions, limiting itself to just presenting them with the bill. According to many, the revision decided in July 2011, which increased considerably the Federal Reform 151 cuts planned for 2013 and extended them to 2014 and beyond, already represented a deadly blow for fiscal federalism.30 Indeed, as had been the case with the 2010 cuts, the new cuts would also not be com- pensated for by the new funding arrangements (unless the regions and local governments were to increase the taxes that they control). However, it was the second revision—adopted in August 2011 under increasing pressure from financial markets and prescribing immediate further cuts—that provoked a united reaction from all representatives of sub-national governments, irrespective of party affiliations, and led the president of Lombardy to declare that fiscal federalism “does not exist anymore.”

Conclusions: What Future for Italian Federalism?

The year 2011 was expected to be the year in which fiscal federalism, as part of a wider federal reform, would be approved and would start to bear “its fruits.” However, the legislation and its immediate con- sequences, such as an overall increased level of taxes, are unlikely to produce any good publicity for the federalist cause. At this stage, it is even difficult to predict whether future governments will try to complete and fully implement the reform or whether they will sim- ply expunge it. It is very probable that the current international cri- sis, which has put Italy under the strict scrutiny of the international economic and financial establishment, will substantively change the priorities of politicians and voters. In addition, the fate of the League, the party that has sought to keep federalism at the center of the Italian political debate, is also uncertain. Its new role as the main opposition party may save it from huge electoral losses in the near future, but its destiny also depends on other political parties. In particular, the departure of Berlusconi from politics—which at the time of writing is by no means certain, but not remote either—would perhaps leave the League as a sort of “pariah party.” As stated above, with all its con- tradictions, the LN has been the “political motor” of territorial reform. Nonetheless, the future of Italian federalism does not depend solely on this reform or on the LN. Independently of the limits of the analyzed legislation, the institu- tional starting bases for further progress remain strong. These include the new Title V of the Constitution, the calls by the Constitutional Court for legislation on its implementation, and the already advanced state of financial autonomy of the RSOs. In addition, given the persis- tence of the economic gap between North and South and the institu- tional gap between RSOs and RSSs, the territorial dimension is likely to 152 Emanuele Massetti remain salient in Italian politics, independently of whether the League remains the main “interpreter” of this political dimension. In fact, the possible marginalization of the LN could even create a more favorable political climate for future reforms. Or at least it could create a better climate for a more open and less tense debate on federalism. However, the continuation of the federalization process (and, even less, its fulfill- ment) cannot be taken for granted. The transformation of the Senate into a federal house of the regions has, for instance, proved to be a very difficult objective to achieve, as senators would have to vote to make their political careers more complicated and uncertain. And even the legislation for implementing the new Article 116 of the Constitution— establishing the criteria to select the regions that would obtain more competences—could prove too controversial for future governments. Indeed, an alternative view on the North-South economic divide and the prospects for territorial reforms could be that the examined legisla- tion simply shows that Italy has reached its limit as regards how far it can go with federalism without jeopardizing its very integrity.

Notes

1. “Federalismo: Calderoli ‘completato percorso attuativo,’” 28 July 2011, http:// www.italpress.com. 2. “Formigoni: ‘Il federalismo fiscale non esiste più’. L’ira degli enti locali,” 12 August 2011, http://www.corriere.it. 3. The “South Tyrolean question” refers to the claims advanced by the Ger- man- and Ladin-speaking minority of South Tyrol (Alto-Adige, in Italian) for a separate and autonomous region. The territory of South Tyrol cor- responds to the Bozen/Bolzano province, which the 1948 Constitution had put together with the Trento province to form a united autonomous region with an Italian-speaking majority and Trento as the capital city. It was only in 1972, after 18 years of political violence and tense negotiations, that the Constitution was changed to pass most of the powers of the region to the two provinces (which became de facto two separate regions). 4. L. De Winter, “Conclusion: A Comparative Analysis of Electoral, Office and Policy Success of Ethnoregionalist Parties,” in Regionalist Parties in Western Europe, ed. L. De Winter and H. Tursan (London: Routledge, 1998), 204–247. 5. See D. Albertazzi and D. McDonnell, “The Lega Nord Back in Govern- ment,” West European Politics 33, no. 6 (2010): 1318–1340. 6. All figures are taken from B. Baldi, “I ‘numeri’ del federalismo fiscale: Un confronto fra le regioni,” Istituzioni del Federalismo, no. 5–6 (2010): 495–514. Federal Reform 153

7. L. Pagani, “Alle Regioni un tesoro da 60 miliardi: Per il sud c’è il rischio bancarotta,” La Repubblica, 19 August 2008. 8. “Federalismo, Errani: ‘Salta l’accordo con il governo,’” 3 March 2011, http://www.ilfattoquotidiano.it. 9. The names of the parties in full are Alleanza per l’Italia (ApI, Alliance for Italy), Futuro e Libertà per l’Italia (FLI, Future and Freedom for Italy), Italia dei Valori (IdV, Italy of Values), Lega Nord (LN, Northern League), Partito Democratico (PD, Democratic Party), Popolo della Libertà (PdL, People of Freedom), Südtiroler Volkspartei (SVP, South Tyrolean People’s Party), and Unione di Centro (UdC, Union of the Center). 10. G. Muraro, “Federalismo regionale: La rivoluzione puo’ attendere,” 5 April 2011, http://www.lavoce.info. 11. G. Arachi and A. Zanardi, “Tutto ruota intorno ai fabbisogni standard,” 9 November 2010, http://www.lavoce.info. 12. See M. Bordignon and N. Dirndin, “Costi standard: Nome nuovo per vecchi metodi,” 28 September 2010, http://www.lavoce.info; and V. Mapelli, “Se il costo standard diventa inutile,” 8 October 2010, http://www.lavoce.info. 13. E. Caruso, “Se il fabbisogno standard premia i meno virtuosi,” 11 October 2011, http://www.lavoce.info. 14. M. Barbero and A. Zanardi, “Quelle regioni ancora più speciali,” 7 June 2011, http://www.lavoce.info. 15. M. Barbero “Federalismo a statuto speciale,” 27 January 2011, http:// www.lavoce.info. 16. The Monti government, which took office in November 2011, has moved decisively toward the abolition of the provinces and, in advance of the necessary constitutional change, has weakened them, both institutionally and financially. However, since the services provided by the provinces cannot be abolished (they will have to be reallocated downward to local councils or upward to the regions), the expected savings appear to be extremely modest. See L. Olivieri, “Pochi risparmi senza le province,” 12 December 2011, http://www.lavoce.info. 17. “Federalismo: Il Terzo Polo conferma il no. PD: Se c’e’ pareggio governo a casa,” La Repubblica, 2 February 2011. 18. See “Federalismo OK per decreto ignorato lo stop della bicamerale,” La Repubblica, 3 February 2011; see also “Federalismo, Napolitano: ‘Decreto irricevibile, comportamento scorretto,’” 4 February 2011, http://www. corriere.it. 19. “Federalismo, ci sarà la fiducia,” 1 March 2011, http://www.corriere.it. 20. M. C. Guerra and A. Zanardi, “Lo psicodramma delle imposte comunali,” 4 February 2011, http://www.lavoce.info. 21. A. Zanardi, “Il federalismo fiscale visto da Washington,” 20 May 2011, http://www.lavoce.info. 22. See “I sindaci leghisti: ‘Non faremo pagare l’IMU,’” Corriere della Sera, 19 December 2011. 23. A. Zanardi, “Il nuovo fisco regionale? Quello di prima,” 12 October 2010, http://www.lavoce.info. 24. M. F. Ambrosiano and M. Bordignon, “Un patto col diavolo,” 29 Septem- ber 2011, http://www.lavoce.info. As far as local councils are concerned, 154 Emanuele Massetti

see the audiovisual documentary, part of the television series Report on the public channel RAI 3, which was broadcast on 23 October 2011, http://tv.liquida.it/focus/2011/10/24/report-di-milena-gabanelli-spiega- il-federalismo-municipale-nel-servizio-di-bernardo-iovene/. A report in the Corriere della Sera, “Quanto pagheranno in più le famiglie nel 2012 dope le ultime manovre,” 21 December 2011, puts the 2012 tax increase for Italian families in the range of 99 to 165 euros due to the increase in the regional share of income tax. 25. A. Cento-Bull, “Lega Nord: A Case of Simulative Politics?” South Euro- pean Society and Politics 14, no. 2 (2009): 129–146. 26. Within the broad package of the center-right constitutional reform, Berlusconi was mainly interested in strengthening central government and, in particular, the powers of the prime minister. See S. Vassallo, “The Constitutional Reforms of the Center-Right,” Italian Politics: Quo Vadis? ed. C. Guarnieri and J. Newell (New York: Berghahn Books, 2005), 117–135. 27. N. Dirindin, “La forbice delle regioni,” 29 January 2011, http://www. lavoce.info. 28. See A. Panebianco, “Destra Moderna o Lega Sud,” Corriere della Sera, 7 September 2010; T. Boeri and M. Bordigon, “Dietro al ‘federalismo soli- dale,’” 9 September 2010, http://www.lavoce.info. 29. M. Bordigon, “Regioni ed enti locali,” 14 June 2010, http://www.lavoce.info. 30. A. Zanardi, “Una bomba sul federalismo fiscale,” 28 July 2011, http://www. lavoce.info.