A sick economy shakes out the fake invalids ; As the Italian scandal season gets into its stride, a spiralling budget deficit is forcing a sharp change in what is acceptable

VIEW FROM ROME

It is scandal season in Italy again. In the past month, a Rome investigating magistrate has discovered that as many as 50,000 "fake invalids" are collecting disability benefits through cushy jobs in the public sector, particularly in the post office. And several thousand officers in the armed forces have confessed they have been systematically inflating their expense claims and accepting bribes to exempt the children of friends from national service.

The university system, too, is under investigation as evidence emerges of competitive exams for tenured professorships being rigged, and state money being wasted on faculties that provide plentiful jobs but are of negligible educational value.

At first sight, such reports seem no more than chaotic Italian business as usual. After all, anyone who knows the country is aware that such scams have been going on for years. But the fact that they are coming to light now is more than mere coincidence. These scandals bear witness to a tough fact of Italian life: that endemic corruption is a luxury the country can no longer afford.

Everyone knows Italy's public finances are hopelessly indebted. The state has been running a budget deficit for so long that overall public debt represents more than 120 per cent of GDP. Worse still, investor confidence in Italy is so shaky that the Treasury is forced to service nearly two- thirds of this debt through short-term bonds. It is a perilous exercise, since the government is having to repay investors faster than it can afford to and has no alternative but to issue yet more short-term bonds to cover its shortfall.

This is clearly an untenable situation, which explains the single-mindedness of the Prime Minister, Lamberto Dini, in bringing the deficit rapidly under control. In April he made an initial L20,000bn (pounds 809m) worth of cuts through tax increases and reductions in public spending. Two months later he finalised a reform of the bloated pensions system, which had been eating up a staggering 20 per cent of GDP. His preoccupation now is to get parliament to approve the 1996 budget with its L32,500bn in further savings before his non-political administration falls victim to inter-party squabbling.

But the budget is not the only issue. Italy is being forced to confront every area of public life and re-examine the extravagant habits of the past. The process started three years ago, when the "clean hands" team of magistrates in Milan brought down an entire generation of politicians with their anti-corruption investigations.

Sweeping away the old order was not prompted by any great rethinking of ethical standards in public life; the bribes large companies were expected to pay politicians and their parties had become too expensive. With Italy hitting a recession along with the rest of Europe, it was no longer reasonable to pay as much as 60 per cent of a contract's value in kick-backs. The only recourse was to denounce the politicians.

Three years on, the revolution in Italian public life has shifted focus. Before, the target was larceny on a grand scale - politicians who stashed gold ingots under their mattresses and siphoned off chunks of the country's GDP into anonymous bank accounts in the Far East.

Now, after a period of high instability, it is institutions beyond the strict sphere of politics that are under attack. The investigation into the fake invalids at the post office, for example, was partly motivated by the urgent need to modernise a notoriously wasteful and inefficient public service. Political sources suggest that the magistrates may have been tipped off by post office managers looking for a way to by-pass the powerful trade unions and cut as much as a quarter of the 200,000-strong workforce.

The need to eradicate waste and privilege is causing consternation in many areas of Italian life. Workers at La Scala opera house in Milan, for example, are threatening to call off the opening night of the new season because they see the management's attempts to cut costs as an attack not just on their lifestyles, but on the very culture of arts administration in Italy. So cushioned have they been for so long, they do not understand why the state is no longer prepared to plunge billions of lire into opera each year and get back less than a tenth of its investment.

The changing mentality is beginning to have an effect on the economic big league. Two months ago Gianni Agnelli, chairman of Fiat, and the head of the Milanese merchant bank Mediobanca, Enrico Cuccia, announced a plan to create the country's second-biggest industrial conglomerate by merging two loss-making groups under their control, Montedison-Ferruzzi and Gemina.

The deal had all the hallmarks of traditional Italian business practice, a piece of economic engineering worked out between old friends behind closed doors. The political establishment was not consulted; neither were minority shareholders. A decade ago, they would have got away with it because they were powerful enough to block all opposition. But times have changed.

Within a few weeks, magistrates and tax inspectors were crawling all over Gemina after discovering an L800bn hole in the books of the company's publishing subsidiary, Rizzoli, and the merger deal was called off. This week Mediobanca received another slap in the face after it bought more than 10 per cent of the shares in Montedison-Ferruzzi's holding company on the sly. The Milan bourse regulator took everyone by surprise by forcing Mediobanca to make a formal takeover offer and buy 10.8 per cent more of its shares on the open market.

Italy's revolution is far from complete. It still has no stable political structure, and its economy is crying out for proper regulation. But these recent episodes suggest a start is being made. Penury may not be the noblest reason for cleaning up public life, but as long as the drive to improve public finances persists, it seems there is a real chance of bringing about lasting change.

Andrew Gumbel

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