Sunday, December 30, 2012

Corruption in Italy Threatens the Efficacy of Fiscal Stimulus

The Telegraph (U.K.):  Making a killing on contracts: how Italy's Mafia has plundered EU building funds
NYT:  Corruption Is Seen as a Drain on Italy’s South 

Mafia led corruption continues to plague Southern Italy, leading to government inefficiency and a reduction in the efficacy of domestic and international infrastructural spending. 

The A3 highway has been at the epicenter of Italian corruption scandals. The highway, which spans an area from Salerno to Reggio Calabria, lies in one of the poorest regions in Italy. Located at the tip of the Southern peninsula, the area lacks high-speed rails, many other infrastructural amenities found elsewhere in the country, and has close to a 20 percent unemployment rate. The Italian government embarked on a plan to renovate the A3, along with other infrastructural projects, in 2001 after receiving funding from the European Union (EU). Since the inception of the project, construction has been completed on 169 miles of the 309-mile highway, and hundreds of people have been arrested in association with their involvement on the highway, mostly on charges of corruption and extortion. Sergio Rizzo, an author who focuses on political corruption, says that European money “did tremendous damage because the funds were used badly and, as some magistrates say, they also fed organized crime.”
Calabria, the region located in Italy’s Southern peninsula is dominated by the ‘Ndrangheta, an international crime syndicate. The ‘Ndrangheta has an annual income of 44 billion from a combination of drug smuggling, extortion, and public-sector graft, and while lesser know than its peers in Sicily or Naples, the ‘Ndrangheta’s reputation has increased greatly over the past decade.
 The ‘Ndrangheta plays a major role in public sector life in Calabria. On October 9, the provincial capital of Calabria, Reggio Calabria, dismissed all 30 members of the City Council and the mayor for suspected ties to the ‘Ndrangheta.  The move, which Italian Interior Minister Annamaria Cancelleri said was designed to prevent “mafia contagion,” came after months of criminal investigation.
Since 2007, over €3 billion has gone from the EU to Calabria, much of that for infrastructure projects, much of that to the ‘Ndrangheta.  While the EU has been able to recover €383 million appropriated to the A3, the potential for future fraud and mismanagement remains high. “The ‘Ndrangheta is like an octopus,” said anti-mafia magistrate Roberto di Palma, “whenever there is money, you will find its tentacles.”
The revelations into the corruption scandals come as the European Commission pushes for a 6.8 percent increase in its annual budget, much of that money going towards funding infrastructural projects in Southern and Eastern Europe. The A3 highways symbolizes a fear for many northern European countries that the Eurozone will develop into a welfare state where fiscal stimulus is misspent or lost to graft at taxpayers expense. While infrastructure spending can have enormous benefit, a challenge for the EU will be increasing oversight and accountability as they continue to fund infrastructural projects.