Mario Monti is putting the boot into Sicily’s autonomous region. The Italian Prime Minister says the island risks defaulting and he wants the governor out. That sounds alarming but Mr. Monti can afford to be rough because Italy’s regions are not nearly as big an unexploded bomb as Spain’s.
Mr. Monti can put a menacing finger in the pin of the island’s debt grenade precisely because Sicily owes only €5.3-billion ($6.6-billion). That’s trivial compared to Italy’s total debt of €1.9-trillion. A Sicilian default, were it to happen, wouldn’t blow up either Italy or the euro zone.
And in fact the default grenade is unlikely to go off. As Moody’s points out, Sicily’s debt is long term, with an average maturity of 13 years, and the island’s interest payments amounted to just 1.6 per cent of operating revenue in 2010. That figure is already well below the limit of 4 per cent which Italy’s central government set in April as a target for all autonomous regions to achieve by 2014.
Nor is the debt of all the 23 Italian autonomous regional governments that big. It amounts to around €115-billion, about 7 per cent of Italian GDP. What’s more, it is stable. By contrast, the debt of Spain’s 17 autonomous regional governments is €145-billion or 13.5 per cent of GDP, and the near-term refinancing needs are high.
But Mr. Monti is talking tough because Italy’s effort to get its overall deficit and debt under control means transfers and support to the regions must be reduced. The central government is pressuring Sicily to reduce its spending and fund more of it itself. Raffaele Lombardo’s government appears to be deaf. In 2011 it increased its number of permanent employees by more than 30 per cent.
Mr. Monti is therefore right to put the frighteners on Sicily. The great hope must be that when he stands down next spring the same urgency is seen on the island – and in Rome itself where the really big debt bomb is still ticking.
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