Telecom Italia Gets the State Treatment

(Bloomberg View) -- Seven weeks after an inconclusive general election, Italy is still without a government. A corporate intrigue, however, is showing what kind of economy Italy is likely to get: one where the state reclaims a central role at the expense of foreign investors.

This month, Cassa Depositi e Prestiti (CDP), Italy’s state lender, took a 4.3 percent stake in Telecom Italia, the former telecoms monopolist. The step was highly symbolic: Telecom Italia had been privatized in 1997 and is now controlled by Vivendi, the French entertainment group. All parties, from the center-left Democratic Party to the right-wing League to the anti-establishment Five Star Movement, were broadly supportive of the decision to claim a stake in the company.

This was a sort of flag-planting exercise it seems. A corporate battle is raging at Telecom: Elliott Management Corp., the activist hedge fund, has amassed a nearly 10 percent stake and wants to revamp the board of Telecom Italia at a shareholders’ meeting on April 24. Analysts expect the state lender, now a shareholder, to back Elliott, which would help to tip the scale against Vivendi.

The government’s resentment with Vivendi runs deep. Carlo Calenda, Italy’s Minister for Economic Development, has called it an “awful investor,” arguing Italy needs a network capable of mobilizing investment. A few years ago, CDP together with Enel, the electricity group, set up a new partnership called “Open Fiber,” which was meant to build an alternative broadband network. The minister now believes that this model in which two companies compete to provide the network does not work. He wants to set up a public company to control the Telecom Italia network, in which the government would also have a say.

It is far from clear whether and how the Italian government will reach its stated aims. What’s bizarre — and worrying for foreign investors — is the way Rome has chosen to intervene. The government could have chosen to try to nationalize the network, paying Telecom Italia the market price for the asset and then investing in its maintenance and expansion. However, this would be expensive for a country with a public debt of more than 130 percent of GDP. Instead, it opted for a less transparent middle way: having CDP buy a minority stake in Telecom Italia in the hope of influencing a corporate battle.

The Telecom Italia affair confirms the ambiguous relationship between Italy and foreign investors. The Italian government is open to foreign money pouring into the country to take over some companies, especially when they have problems: At the height of a recent banking crisis, Rome looked extensively abroad for investors into its troubled lenders, including Monte dei Paschi di Siena. However, politicians still have a tendency to meddle when they believe a strategic, national interest is at stake. They like private capital, but not so much private decisions. 

Of course, Italy is not alone here. France has an extensive history of interventionism, which President Emmanuel Macron has continued, last summer intervening to block a takeover from Italy’s Fincantieri of the shipyard STX. The Italian company eventually obtained the control of the shipyard, but only after an excruciating negotiation which did little to prove Macron’s claim that France is now open to foreign investors.

Telecom Italia may just be the start of a more interventionist period in Italy. The League is talking openly of barring foreigners from buying Alitalia, Italy’s former flagship carrier, which is currently on sale after the government rescued it via a 900 million euros ($1.1 billion) bridge-loan. The Five Star Movement wants to turn CDP into a fully-fledged national development bank, which lends to corporates at subsidized rates. We don’t know yet what government Italy will have, but we know that it is impossible to form a cabinet without the support of one of these two parties. Calls for a more active “industrial policy” will necessarily grow louder.

These ideas would put Italy on a collision course with Brussels. The EU has strict state aid guidelines, which are used to preserve open and fair competition across the single market. The present Italian government has been careful to negotiate its way with Brussels, but another may not have the same tact. Italy’s new industrial policy is an accident waiting to happen.

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. 

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