ECONOMY

Prodi sees crunch week for retirement reform

ROME – Italian Prime Minister Romano Prodi said yesterday this would be a crunch week for pension reforms that have irked the unions, split his center-left government and raised alarm bells within the European Union. Prodi, who hopes to clinch a deal before the summer break, has pledged to present a plan that would strike a compromise between the original reform – which raised the retirement age to 60 from 57 from 2008 – and union demands that it only be raised to 58. He is expected to do so by Friday. «Yes,» said Prodi when asked by reporters yesterday if this would be a decisive week for the reform. The EU and international financial institutions have long told Italy, which has one of the fastest aging populations and one of the highest public debts in the world, that its current pension system was not affordable in the long run. That system allows Italians to retire at 57 if they have also worked for 35 years. Prodi’s government, which came to power last May, inherited from its center-right predecessor a plan to raise the retirement age to 60 from 2008 and then to 62 by 2014. The 57 to 60 jump in one go has been dubbed the «scalone» – literally «big step.» It would give estimated savings of up to -10 billion a year from 2010, money Italy badly needs to put its public finances in order and meet the European Union’s budget deficit requirements. The unions, and Prodi himself, instead favor a «scalino» – a series of small steps, or more gradual increases in the pension age, but disagree on where the reform should stop. That would mean less money would be saved, at least initially, something that has already caused alarm in Brussels. Talks, which have dragged on for weeks, broke down last month over a government proposal to raise the pension age by one year every 18 months, and eventually settle at 62. They have resumed since but seem to have made little progress. Prodi also faces resistance from the left of his coalition, with the Communist Party agreeing on Sunday to raise the pension age only to 58, and then pay incentives to workers who want to keep working beyond that age. Even that watered-down reform would not apply to people who have manual jobs, work night shifts or are employed in occupations that cause high levels of fatigue. It is opposed by the more liberal, centrist parties in the government. With a razor-thin majority in the Senate, Prodi cannot afford a revolt in his Catholics-to-communists coalition, leading many commentators to say the fight is not just about pensions but about his own political survival. Another issue on the table is whether the reform should set the same pension age for men and women. At present, women retire earlier than men. The EU’s Economic Affairs CommissionerJoaquin Almunia last week pointed to that gender difference as one of Italy’s «anomalies» and told Economy Minister Tommaso Padoa-Schioppa that the EU was worried about the reform plan. Almunia specifically told Rome that any reform must not increase overall pension spending. The unions have already won more money for low income pensioners. Brussels’ concern has mounted since Prodi’s government raised its 2007 budget deficit forecast last month to 2.5 percent of gross domestic product from 2.3 percent to take into account a series of welfare measures demanded by the left of the ruling coalition.