Italy Is Playing With Fire With Investors

The Covid-19 pandemic has dealt a serious blow to Italy’s economy, which was already struggling with high public debt and low growth. The government now risks making matters worse: A string of high-profile interventions, the latest in Telecom Italia SpA, has the potential to scare off investors just when the economy needs them most.

Italy Is Playing With Fire With Investors

Since the early 1990s, successive Italian governments have sought to attract foreign capital through a combination of privatizing companies and passing structural reforms. From banking to telecommunications, politicians opened up entire sectors, while also making it easier for businesses to hire and fire workers. This process remains incomplete, especially with regard to modernizing the public administration. But, from left to right, there had been a growing appreciation for the role that private investors could play in creating jobs and boosting competition.

Today’s governing parties, the left-wing Democrats and the populist Five Star Movement, are much warier of the free market. Prime Minister Giuseppe Conte seeks a bigger role for the state, which he thinks can do better than entrepreneurs in boosting the economy and protecting national interests. He is passing laws that constrain freedom of enterprise — including a temporary ban on dismissing workers — and interfering with the decisions of some company boards.

These actions are not merely fixes for the temporary difficulties of dealing with the virus, but are part of a long-term, strategic vision — one that may have profound consequences for the way the Italian economy operates.

The latest round of interference concerns telecommunications giant Telecom Italia, which is seeking to spin off a minority stake in its fixed-line network and sell it to investors including private equity firm KKR & Co. The prime minister reportedly intervened to delay this deal, as he is seeking ways to create a single-network company that is not controlled by Telecom Italia and is open to all operators. The government now seems to support plans to merge Telecom Italia’s network with smaller rival Open Fiber SpA, as it believes it would speed up modernization of Italy’s broadband networks while avoiding duplicate investments.

Rome fears that Telecom will abuse its role as the majority owner of the network, curtailing competition and not investing in improvements of service. This need not be the case, especially if Italy chose to strengthen its regulator, AGCOM. But even if the government were right in seeking a different ownership model, it should still preserve Telecom Italia’s property rights by bidding for control of the network as any other private investor would do. Alternatively, it should let management get on with their decision rather than putting unsolicited pressure on them. 

The Telecom Italia tale fits a broader story. Last month, Conte announced he was forcing the Benetton family out of Autostrade per l’Italia SpA (Aspi), following the 2018 collapse of a bridge in Genoa that killed 43 people. The government has not yet sketched out all the details of this operation, which remains legally and financially dubious. But this charade gave the impression of a country that is little concerned with the interests of private investors, including the other shareholders and bondholders in Atlantia SpA, Aspi’s controlling company.

The government is playing with fire. If investors come to believe that Rome acts arbitrarily, they will start demanding a discount for holding Italy’s assets. For a government managing a large sovereign debt, with little room to take over companies and invest in them, this is not a risk worth taking.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Ferdinando Giugliano writes columns and editorials on European economics for Bloomberg View. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.

©2020 Bloomberg L.P.

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