MNI ITALY WATCH: Officials Optimistic On Court Pension Ruling

--Renzi's Decree Respects Fiscal Targets, "Constitutional Rule"

--However, Some Unease In Rome Adverse Ruling Will Impact Finances

By Silvia Marchetti

     ROME (MNI) - Italy's constitutional court is expected to rule later this

year on a partial pension reimbursement scheme that could put at risk the

nation's public finances and torpedo planned new tax cuts if declared

unconstitutional.

     Several top officials told Market News they are, however, quite confident

that the emergency decree passed in 2015 to fix and "undo" former premier Mario

Monti's block on inflation-adjusted pensions in 2012 will be given the green

light by Italy's supreme judges in a ruling expected October 24.

     Monti's decision back then to stop the revaluation of pensions above E1,500

monthly was made to avoid an Italian debt default, given pensions make up a

large part of state spending. But in 2015 the high court first ruled that the

pensions block was unconstitutional, urging the government of then prime

minister Matteo Renzi to intervene.

     "We were able to clear, and then get Parliament to back, an emergency

decree to find an exit strategy by partly reimbursing 3 years of lost pensions

in a gradual way and by giving priority to low earners," said Mauro del Barba, a

Democratic member of the Senate's budget committee.

     "The 2015 decree passed by Renzi respected both the court's ruling of

paying back at least a part of those lost pensions and that of respecting set

budgetary targets without putting at stake our fiscal adjustment path. We found

a compromise to save our finances and I am confident the judges will acknowledge

this," he added.

     La Barba argued that the court must take into account that Renzi's decree

was applied in compliance with article 81 of Italy's constitution regarding

fiscal commitments: "No laws passed, of whatever nature, can clash with the

supreme rule of reaching a balanced budget, and given that this is a

constitutional rule, constitutional judges that defend the application of the

constitution cannot ignore it," the article states.

     Renzi's partial reform, approved by law, thus scrapped Monti's 2012 reform.

     If the emergency decree had not been passed in 2015, the court ruling would

have blown a E24 billion hole in Italy's budget at a delicate moment, as the

government was starting to fund crucial tax cuts to support low earners and

kick-start the recovery.

     "The court's ruling would have been immediately effective. We stepped-in at

once to avoid a budget bleeding by minimizing its impact," explained La Barba.

     Renzi's partial reform of Monti's pensions overhaul benefitted some 3.7

million workers earning up to E3,000 a month, with a total cost to the state

coffers of E2.8 billion. The additional needed resources were, in part,

generated from the "bonus" from savings on debt interest rates and by extra

flexibility granted by the European Commission for reform efforts.

     The 2015 degree granted a 100% revaluation reimbursement for pensions up to

E1,500 per month, 40% up to E2,000, 20% up to E2,500 and 10% up to E3,000.

     The appeal to the constitutional court was then filed by those pensioners

who were left out of Renzi's reform, unsatisfied and expecting more, said La

Barba. These pensioners get a monthly check which is 6 times higher than the

minimum state pension of monthly E500.

     A Treasury source pointed out that the decree obeyed the court's ruling

against Monti's original reform.

     "The judges never said that the whole amount had to be reimbursed to

everyone and acknowledged a gradual and progressive degree in the payback

scheme, which is exactly what we did," the source said.

     However, the court's October ruling cannot be appealed by any other

institutional body, as it is the final arbiter. Whatever the ruling, the

government must abide by it.

     "We do not know what the judges will decide, but whatever will be their

decision we will abide to it," said the Treasury source, suggesting that in case

of defeat the government would have to step-in once again.

     "I really hope we will win this battle. Our intervention back in 2015 was

just, reasonable and logical. We cannot afford today to re-open the wound. It

would have a harsh impact on state finances," warned La Barba.

     Another negative ruling by the court in October would come at a bad time

and jeopardize the already pressured public finances. Autumn is a critical

moment, as parliament will be pushing to approve the government's 2018 budget

plan, with more labour tax cuts expected, alongside further measures aimed at

supporting youth employment.

     Any budget plan, once cleared, will have to be forwarded to the European

Commission for approval.

     Italy's brighter economic outlook could allow for additional fiscal

resources if needed. Statistics office ISTAT recently raised this year's growth

target to 1.5%, higher than the government's 1.1% forecast. But the Treasury

currently plans to use all additional resources for tax cuts and investments.

Pensions are not on the government agenda at the moment, though a negative court

ruling in a few months could change those priorities.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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