Excessive government spending is not the only dispute between Brussels and Italy, some 13% of the European Court of Justice's time and resources go into investigating its alleged contraventions of EU law, with a seemingly unlawful regional business tax a particular concern.-

In recent years newspaper headlines about Italy's relations with Brussels have focused almost exclusively on the country's difficulties keeping to the conditions of the Eurozone's Stability and Growth Pact. For years, however, the country has had a love-hate relationship with the EU, for instance, 'boasting' one of the worst records in the EU for failing to implement European directives at national level.

Now it is also in the dock over its record for contravening EU law.

In a major report published on 17 August, the Italian financial daily, Il Sole 24 Ore, goes to great lengths to describe Italy's delinquency in the European Union.

According to Il Sole 24 Ore, as of June 2005 the European Court of Justice in Luxembourg had 101 cases pending against the Rome government for contravention of EU law in areas ranging from company law to public contracts, competition/state aids, the environment, taxation, immigration and employment contracts. About a half of these cases were brought against the state by Italian magistrates with one company law case even involving the business interests of Italian premier, Silvio Berlusconi.

The case of Italy's Irap, a regional tax on public and private companies, warranted a front page story in the 15 August issue of the newspaper. In a preliminary ruling the Court of Justice's Advocate General has ruled that the tax contravenes EU rules on indirect taxation because it is levied in a manner similar to VAT, the main form of indirect taxation. Should the Court support the Advocate General's ruling - and it almost always does, € 33 billion of unlawfully collected taxes would need repaying and a huge hole would open up in regional and national budgets. The article lists a further three important cases that, taken together with the Irap case, could cost the government € 40 billion.

Italy's extremely shaky public finances could not sustain the strain of a major obligation to repay anything near that figure. The economy may have officially come out of recession in the second quarter but growing public debt and a pensions time bomb will ensure that Italy's economists and financial analysts will be watching events in Luxembourg very closely over the next few months.

Anthony Smith
17 August 2005