Sicily: The next Greece?

20th July 2012

The Guardian reports that the region faces a deficit of up to €7bn (£5.49bn) this year and is in danger of default without sweeping cuts.

Sicily's regional councillor Andrea Vecchio warned that the island has run out of money. "I'm afraid we will soon no longer be able to pay civil servants' salaries," he said.

"The developments in Sicily are very serious," said Prof Giuseppe Ragusa from Luiss University in Rome. "It is just the sort of negative shock we don't want right now. Everything has to go perfectly for Italy to pull through."

The whiff of default came to light when Sicily was among 23 Italian "sub-sovereign entities" downgraded by the credit rating agency Moody's on Monday. The FT says it was a development that raised the possibility of a chain of defaults at the local level unless the central government intervenes.

Mario Monti, the country's technocratic prime minister, indicated in a statement Tuesday that the government would take action to bail out Sicily's debts, saying it would "deploy the most efficient and appropriate instruments."

 "I think Italy's central government will have to do what the eurozone is doing for Greece or other troubled member countries – ie, get them into a ‘programme', decide if the debt should be restructured and provide financing," said Riccardo Barbieri, economist at Mizuho International.

"This would not change the general government debt situation, but it would affect the composition of its funding."

In it's analysis of the predicament facing Sicily, Open Europe, an influential think tank in the EU, argues that Sicily shows that Italy still has a lot more to do:

"Politically, the situation is obviously serious, but not particularly controversial. Regional autonomy in Italy is not the same thing as, for instance, in Spain. The right for the central government to step in and grab the helm if regional administrations go off course is enshrined in the Italian constitution. However, the unbelievable list of waste and mismanagement examples which led Sicily so close to default offers a clear explanation of why Italy still has a lot to do to find its way out of the woods of the eurozone crisis."

Nevertheless, Sicily's Governor Raffaele Lombardo, who is under investigation for Mafia ties, which he denies, insists that the Italian island is not on the brink of default, saying only that it is having some liquidity problems.

"Sicily is not at risk of default," said Mr Lombardo, blaming the crisis on cuts by Rome itself under its EU-imposed austerity regime. "We face a liquidity crisis linked to the recession in the rest of the country. It is hard for lots of regions, and not just Sicily."

"We are victims of disinformation, lie, and falsehoods. What are we supposed to do? Cut even further? Detonate a social explosion in Sicily? Turn Sicily into a land of desperation where everything is destroyed," he said.

Indeed, with Sicily's unemployment standing at just under 20 percent (nearly double the national rate) and youth unemployment at over 40 percent, The Guardian's Alberto Nardelli warns that significantly downsizing the region's workforce would not only lead to even higher unemployment rates and unrest – and more dangerously, it would drive many to seek protection elsewhere.

"Organised crime recruits its disciples where there is impoverishment, a lack of security and voids of governmental power and presence. In part, such a void is currently filled by the region's inflated payroll."

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