ROME - Italy is ducking its chance to use crisis for sweeping reforms

Italy is experiencing the sharpest economic contraction for 28 years and unemployment is next year expected to jump to 9% from the 6.9% forecast for 2009. But economy minister Giulio Tremonti is determined to keep public finances under control, in line with advice from the European Central Bank and the European Commission. The major tax cuts promised in last year's election campaign have been put on hold, and measures announced so far to stimulate the economy appear to be limited.

Silvio Berlusconi’s centre-right government says it will invest €44bn in infrastructure over three years in an effort to lessen the impact of recession. Among the more controversial projects, the spending programme revives Berlusconi’s ambition to bridge the Messina Straits between Sicily and the mainland. The previous centre-left government cancelled the plan in 2006, saying the bridge was too expensive, unnecessary and liable to become a windfall for organised crime – the Sicilian Mafia and the ’Ndrangheta of Calabria.

Another construction sector proposal is also creating a stir. The government wants to relax planning laws and give property owners tax breaks to extend their houses. But some people are warning that over development will damage the country’s distinctive regional landscapes. Elsewhere in the economy, the government’s €2bn support package for the car industry is similar to the French initiative to help Renault and Peugeot-Citroën. The Italian measures apply to foreign-made vehicles as well as cars manufactured by Fiat, Italy’s largest private-sector employer, in line with the government’s anti-protectionist policy. Rome says the impact on international competition from such national schemes must be kept to an “absolute minimum”.

Not everyone in Italy is impressed with the government’s EU-orientated economic strategy. Confindustria’s president Emma Marcegaglia is calling on Europe to follow the U.S. lead and launch bigger stimulus programmes. The Italian government is also being accused of overstating the European and global dimensions of the crisis to hide the structural weaknesses of the Italian economy. It has down played the fact that Italy went into recession earlier than any other big European economy, and that Italy is the only leading country forecast by the International Monetary Fund to face three consecutive years of contraction.

The government is said to have over-emphasised how ‘exceptional’ the country’s banking system has been. Italian banks proved less vulnerable to the financial meltdown than those of other major European countries with their resilience put down to cautious lending and borrowing strategies, the low levels of household debt in Italy and high levels of savings. But the government still allocated a maximum of €12bn for recapitalisation of the banks through a government-backed bond offer, and Tremonti has even floated the idea of EU bonds. Some major banks may yet ask for state aid, especially institutions exposed to the unfolding crisis in eastern Europe.

In terms of party politics, Italy’s European approach to the current crisis is meeting little resistance. Euro-scepticism has evaporated in some members of the ruling coalition, notably the Northern League. (It was one of the greatest achievements of Berlusconi’s EU policy to make sure the Northern League voted for the ratification of the Lisbon treaty.) So far opposition parties have offered no alternative plans to deal with the economic crisis, apart from demanding that welfare benefits are maintained.

Potentially, the time could have been right for Italy to rethink its whole economic system, to slash bureaucracy and to modernise business practices. Instead, the government is doing a lot of talking about its commitment to addressing the country’s problems effectively, even if it means more meddling in sectors such as banking and some industries.