Southern cross

Good at laundering

What can be done to make it more bearable

IT IS easy to think of European countries that have trouble with their regions. There is Spain, with Basque and Catalan aspirations for independence; Germany, with feistily autonomous Bavaria and a depressed east; perhaps France, with Corsica and other little pockets of independent-mindedness. But Italy seldom figures on the list, and indeed it does not suffer from serious or violent separatism - even the Northern League's talk of a breakaway "Padania" is really just a way of pressing for more regional devolution, not independence. Yet Italy has a regional problem that is in some ways more serious than all the rest: its south, or mezzogiorno, with its chronically troubled economy.

Italy's regions have been given significant extra powers and substantial budgets (notably for health care) over the past decade, largely in response to the Northern League's demands. Cities have elected mayors, some of whom - such as Walter Veltroni in Rome - are figures on the national stage. The government recently brought in a set of constitutional changes, now passed by both houses of parliament, to give regions even more powers over education and social services.

This is said to be the biggest change to Italy's constitution in 50 years. But the centre-left opposition is against it, and the measure needs approval in a referendum, probably after the next election. Moreover, it fails to settle what is always the trickiest issue in any devolution of power: money. The regions and provinces do control some taxes, but one of the most important of these is IRAP, a form of local value-added tax on business that is of questionable legality under the EU treaties and is due to be abolished. For the time being, a big part of the regions' money will continue to come from central-government grants. This is a recipe for duplication, waste and unaccountable spending, and it may make Italy's already messy public finances harder to control.

Even so, if designed sensibly, more federalism would be a good thing in a disparate country that was united less than 150 years ago. Piedmont and the Veneto feel utterly different from Apulia or Sicily. Federalism also pleases the Northern League and its supporters. But it will not do much for the mezzogiorno. The two big problems of the Italian south are a poorly performing economy, too dependent on the public sector; and pervasive corruption and organised crime. These cannot be solved merely by giving the regions greater autonomy. In many ways, Italy, once many countries, is now two: the affluent 37m who live in the north, and the much poorer 20m who inhabit the south.

In search of a cure

Over the years, many cures have been prescribed for the southern economy. The first was migration: a disproportionate share of Italian emigrants in the late 19th and early 20th centuries came from the south. Large numbers of southerners also went north to work in new car plants and factories. But although emigration can produce a flow of remittances, it removes some of the brightest and most energetic workers and does nothing to create a dynamic economy at home.

In any case, the south now faces an entirely different migration problem: the huge numbers of illegal immigrants trying to enter the country from northern Africa across the Mediterranean. Many of them come in leaky boats, hoping to land on the islands of Lampedusa or Pantelleria. Italy is less used to handling immigration, whether legal or illegal, than most other EU countries; for many years it allowed people to enter fairly freely in the expectation that most would merely pass through on their way to their final destination, Germany or elsewhere in northern Europe. But as a member of the borderless Schengen group, Italy has now been forced to tighten its controls, especially in the south. Ironically, this comes at a time when the country's population is shrinking and it should - like the rest of Europe - be looking for more, not fewer immigrants.

The second attempt at curing the south's economic troubles came in the form of investment in factories, often state-owned. These included giant steel and chemical works, the Alfa Sud car plant, shipbuilding and others. These plants became known as "cathedrals in the desert". They suffered from chronic low productivity, low-quality output and relatively high costs, as well as growing competition from other countries. Most of them have been closed down over the past three decades.

The third prescription was to encourage small firms to set up in or move to the south to replicate their success in the north. The region around Naples, especially around Mount Vesuvius, is littered with small textile companies, many of which resemble the sweatshops of Asia. Farther south, Basilicata has lots of small furniture-makers. But the entire mezzogiorno is suffering from low-cost Chinese competition. And this is not a region famous for its strong entrepreneurial spirit or its flexible labour market. A big reason why unemployment is so high is that wages tend to be set nationally, when they really ought to be much lower in the south. In a region with little respect for the law, the underground economy is also large.

It is not all hopeless, however. Gianfranco Micciche, the Italian government's minister for the mezzogiorno, points to successive OECD and IMF reports which have acknowledged that public administration in the south is improving. He also claims that the unemployment gap with the north is shrinking: in 2001, he says, unemployment in the south was 21%, but it has since come down to only 14%. Over the same period, he adds, the rate of take-up of available EU regional funds has risen from a paltry 40% to almost 100%. The eastern regions seem to be doing better than the western ones. The biggest problems are now concentrated in Campania, Calabria and Sicily.

The south is not without its successful industries and cities. The mayor of Naples, Rosa Russo Jervolino, agrees that the city has suffered from a loss of basic industries over the past decade, but points to aerospace and high technology as areas of growth. The universities in Naples have a high reputation for engineering. She concedes that Naples's image needs "revitalisation", but the recovery that was set in train in 1994 by her predecessor, Antonio Bassolino, has continued. The city's infrastructure is improving, and the local economy has recovered from the near-demise of its biggest bank, Banco di Napoli, which is now part of San Paolo IMI.

Two centuries ago Naples was one of the biggest cities in Europe and capital of a prosperous kingdom (hence the venerable, note-issuing Banco di Napoli). Its setting below Vesuvius is spectacular, its archaeological museum world-beating, and the San Carlo opera house claims to be Europe's oldest. Naples ought easily to outdo such other Mediterranean cities as Barcelona in tourism and as an investment location. Yet Barcelona, boosted by the 1992 Olympics, has left Naples in the dust. Mr Bassolino, now regional president of Campania, made much of his city's hosting of the G7 summit in 1994, but the legacy has endured less well. Naples may have escaped from the deep quagmire it found itself in 15 years ago, but the city still has plenty of catching up to do.

Perhaps its biggest problem is its reputation for violent crime and corruption. Last year it was hit by a wave of gangland and drug-related killings. Although the police seem to have stopped these, the Camorra (the Neapolitan version of the Mafia) remains powerful. It did well out of relief money sent to Naples after the 1980 earthquake. If you want to know why the streets of Naples and the roads up Vesuvius are covered with rubbish, the answer lies with this organised-crime group.

And the Camorra is not alone. Calabria has the 'Ndrangheta, reputedly the toughest and hardest-to-penetrate of the southern criminal groups. It is believed to have been responsible for last month's assassination of the deputy chairman of the region, although no clear motive has yet been discovered. Mr Berlusconi was heavily criticised for his failure to speak out against the attack or to attend the funeral. Both the Italian president, Carlo Azeglio Ciampi, and the opposition leader, Romano Prodi, were there.

Cosa Nostra at work

And then there is the Mafia in Sicily. Of all the organised-crime groups in Italy, it is the Mafia that has most directly challenged the state in the past 20 years. The challenge has been partly beaten back, thanks to the bravery of a string of dedicated and hard-working magistrates in Palermo. Many top mafiosi have been convicted and jailed, often on the basis of confessions by pentiti, former Mafia members who have turned state's evidence. Yet the price has been fearful. Outside the Palace of Justice in Palermo is a moving memorial to the 12 Sicilian magistrates who have been assassinated since the 1980s.

The magistrates have not been overwhelmed by help from Rome. One former (Christian Democrat) prime minister, Giulio Andreotti, was tried but not convicted for complicity with the Mafia; the appeal court said he had merely been "friendly" with it. Marcello Dell'Utri, a close colleague of Silvio Berlusconi, who was intimately involved in the establishment of Forza Italia, was convicted of the same offence, though he has launched an appeal. Magistrates in Palermo believe that the Mafia, which was weakened in the late 1990s, has grown stronger in the past four years, partly because Mr Berlusconi and his friends have undermined the work of the judiciary.

The Mafia certainly adds to the cost of doing business in Sicily. Yet, as elsewhere in the mezzogiorno, it is the economy and high unemployment that are the most serious challenges. As Pietro Busetta, an economist in Palermo, puts it, Sicily has 5m people, but only 1m in work - replicating the general southern (and Italian) problem of too low a rate of participation in the workforce. Mr Busetta sets great store by the plan recently approved by the Berlusconi government to start work on a much-discussed bridge across the Messina straits, connecting Sicily and Calabria. Critics see this as a boondoggle that will greatly benefit a few construction companies - and no doubt both the Mafia and the 'Ndrangheta.

One thing on which Sicily should work much harder is its tourist industry. The island ought to be the jewel of the Mediterranean. It has a superb climate, wonderful scenery, an active volcano, delightful beaches and excellent food and wine. Its abundant cultural treasures range from the extraordinarily well-preserved Greek temples and theatres at Segesta, Agrigento and Taormina to the Baroque beauty of Catania and Noto. Even the Mafia tradition might attract tourists to places such as Corleone. And yet, complains Mr Busetta, Sicily gets far fewer tourists than Ibiza, and about the same number as Malta.

Sicily is a paradigm for what is wrong with the mezzogiorno, and indeed with the whole of Italy. It has a high-tech cluster near Catania and some good universities. But its tourist industry and its entire service culture are underdeveloped. The same is true right across the south - a region that should have been at least as well placed as Spain to benefit from the boom in European tourism over the past 40 years. In a very Italian way, it has manifestly failed to realise its full potential.

Article forms part of a survey of Italy. It looks at the problems facing the southern regions of Italy.