What do Italian business giants Fiat, Finmeccanica and UniCredit all have in common? They are among Libya’s beloved Italian investments, and are just part of the billons of dollars in Libyan loot circulating through the Italian economy. The love is mutual -- Italy has fortunes invested in Libya.
No European country has closer ties to Libya than Italy. Libya was an Italian colony from 1911 until Italy’s capitulation to the Allies in the Second World War. Italian Prime Minister Silvio Berlusconi and Libyan strongman Moammar Gadhafi have signed trade, investment and “Friendship” treaties. Eni, Italy’s biggest oil company, and the most successful European oil player in North Africa, is the biggest foreign investor in Libya.
The tight economic links between the two countries explains why Mr. Berlusconi was slow to take a strong position on Col. Gadhafi’s assault on the rebel forces earlier this year, and why he seemed happy to hand the coalition air raid file to France, Britain and the United States. While Italian Tornado fighter-bombers have joined the assault on Libya, targeting Libyan radar installations on Sunday night, you get the sense that Italy dreads this mission, for fear that it is bombing its own economic interests into ground.
Italy’s wish-washy response on the Libya file in the weeks ahead of the launch of the air raids (which include at least six Canadian CF-18 fighter-bombers) was shocking to some observers, given how much it has at stake in Libya. In a note published last weak, James Walston, professor of international relations at the American University of Rome, said that Italy’s “silence is not only unbecoming, it is against Italy’s own interests and a renunciation of responsibility. No one expects Italy to take unilateral action, but to have a position like the French, the British and the Germans is not too much to ask. Or at least to debate the issue.”
There is no doubt that the Libyan war will hurt Italian interests in Libya, and Libyan interests in Italy. In recent years, Libyan investments in brand-name Italian companies have become hugely controversial. In 2010, embarrassment over Libya’s rising stake in UniCredit, one of Italy’s leading banks, was at least partly responsible for the resignation of Alessandro Profumo, who was UniCredit’s CEO. Libya’s stake in UniCredit, held by the Libyan Investment Authority and Libya’s central bank, is about 7.5 per cent.
Libya holds stakes in other sensitive Italian investments, including Finmeccanica, one of Europe’s largest defence and aerospace companies. The Libyan Investment Authority owns a 2-per-cent stake in Finmeccanica, which is a big player in British and American defence markets. Finmeccanica owns AugustaWestland, the company that builds the Lynx helicopters for Britain. In the United States, its holdings include defence contractor DRS Technologies, whose products range from thermal imaging devices to aircraft loaders.
Libya also owns a stake in Fiat, though it is thought to be 2 per cent or less. Still, its an investment that Fiat’s Italian-Canadian CEO, Sergio Marchionne, would no doubt rather do without.
Italy’s investments in Libya have already suffered. Eni has stopped pumping oil in Libya, though it continues to supply natural gas to power stations around Tripoli, the Libyan capital and scene of the destruction on Sunday of one of Col. Gadhafi’s bunkers. The potential destruction of Eni’s oil infrastructure in Libya is weighing on its share price. In the last month, its shares have lost about 4 per cent even as oil prices have surged.
The Libya war has hurt more than Eni. Italy typically imports as much as 25 per cent of its oil, and 10 per cent of its natural gas, from Libya. Libyan energy exports have dropped to almost zero, meaning Italy will have to scour the planet to replace them.
Impegilo, Italy’s biggest construction company, is also worried about its Libyan future. Impregilo has extensive business ties to Libyan, in good part thanks to Mr. Berlusconi’s close relationship to Col. Gadhafi, and had high hopes of building a Libyan highway project valued at as much as €5-billion. Its shares have also suffered since the Libyan civil war began.
For Italian investments in Libya, the shorter the Libyan war, the better. Since Italy is a member of the anti-Gadhafi forces, Italian companies will no doubt be considered for reconstruction projects. If the war drags on for months or longer, as it could, all bets are off. Col. Gadhafi, should he survive, would no doubt retaliate by making it impossible for Italian companies to operate on Libyan soil.
As for Libyan investments in Italy, it appears they will eliminated or forfeited. Italy’s relationship with Libya will never be the same. One of Mr. Berlusconi's key diplomatic and economic strategies -- the embracement of Libya -- is burning.
Follow Economy Lab on twitter