Federica Stagni, Research Associate with ACLED at the University of Sussex, explains why the new generations risk to pay again for the proposed abolition of the controvertial Fornero reform.
In any electoral campaign, politicians are more concerned about making promises than concretely thinking about how to realize them. This is particularly the case of the abolition of the so-called Fornero reform, named after Elsa Fornero, the former Minister of Labor in the Monti cabinet. Almost every Italian political party has promised to make at least some changes to this extremely controversial law. However, during this last electoral campaign, some of them have gone much further, pledging to abolish altogether the contested law once at the government.
In particular, this challenging promise came from two specific parties that have achieved a considerable success in the last vote: the Five Star Movement and the Northern League. The first could be considered the winner of the electoral competition, being the single party that obtained the larger number of votes. While the Northern League is definitely the main party of the right-wing coalition and a political force that, during just one parliamentary term, was able to go from an irrelevant 6 percent to an unexpected 17 percent of votes. Nevertheless, the abolition (or even the reform) of the Fornero law involves the implementation of some measures that are difficult to put in place, since they would entail considerable costs both in economic and social terms.
The historical context of the law
The so-called Fornero reform was introduced in December 2011 as one of the main elements of the ‘Save Italy’ reform package. After the financial crisis of 2008 and the subsequent debt crisis of 2010, in Italy, as in many other countries, there was the need to reduce public spending. Therefore, a technical government of experts was empowered to implement a series of actions aimed at stabilizing the economic system. The legislative decree 201 of 2011 was designed to reform the pension system with some structural changes:
The retirement age was increased to 66 years-old for both men and women in the public sector with a minimum of twenty years’ contributions. The threshold for women in the private sector was raised to 62 years and to 63 for self-employed persons.
A new pension calculation system for all workers was introduced. The pension is now assessed according to the contributions and no longer on the received salary.
Abolition of the old-age retirement and introduction of the anticipate retirement, imposing people to have worked at least 41 years for women and 42 years for men.
Introduction of periodic adjustments of the retirement age according to the increase in life expectancy.
Overall, similar measures were implemented or had already been implemented all around Europe. The Fronero reform accelerated the approbation of a new system that was already accepted in many other European and Western countries.
The effects of a fake golden age
However, it has to be recognized that this law had disproportional effects towards some categories of people. This was the case of those who had left their job in order to enjoy the ‘old-age pension’, based on a person’s age. As a result, many of them found themselves without work and pension. Estimations show that the number of people involved in this category (esodati) are virtually 350 thousands of workers. This is the main reason why the reform was so strongly disputed.
The Fornero reform was also one of the answers to the phenomenon of the so-called ‘baby retirements’. With this expression reference is made to the generous pensions introduced in 1973 and maintained until 1992 for public officers who, thanks to this favourable legislation, were able to retire when they reached the age of 40-50. As it is clear, this provision remarkably impoverished the Italian national treasury and enormously increased the public debt. In addition, the 1992-law that reformed it was not comprehensive and decisive enough to bring about a serious change.
Nonetheless, although Italy is still paying the consequences of the inefficiency of the ‘First Republic’, data show that the Fornero reform has determined some improvements in the Italian financial sector. Therefore, according to the president of INPS (the National Social Security Institute), the abolishment of this reform would cost to the public sector almost 90 billion euros. Always according to him, without this reform, 20 billion euros a year in savings risk to be jeopardized.
New generations pay for the mistakes of their predecessors
Indeed, the cuts implemented with the reform were actually massive and, even though they hit disproportionally the lower classes, this was just one of the elements that characterized that period of reforms. What is certain is that a social welfare system capable to address the needs of the lowest classes has not been introduced yet. Sooner or later, all countries where life expectancy is increasing should face the question of working for an increasing number of years. However, in Italy, this step was particularly abrupt and many people suffered because of this sudden adjustment.
New generations often pay for the mistakes of their predecessors. But we cannot ignore that, by abolishing a reform which is actually saving a lot of public money, the future generations will risk to face again the problem of an insurmountable public debt. Suffice to say that, on last March 3, the Italian public debt reached the 131 percent of its GDP (Gross Domestic Product), which is still among the highest in Europe.
What is certain is that this measure, together with the proposals of the citizens’ income, is surely something that the National Treasury cannot afford. Maybe, if better framed, the citizen’s income could still address some of the side effects of the Fronero reform. However, the main risk is to resort to cuts in the health and education sectors, as they have always represented the main source of money in times of crisis.