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Unemployment, Taxes Top Concerns in Italy PM Race

Election takes place at a time of economic hardship for textile industry.

Silk machines at the Taroni factory.

GRANDATE, Como — Under the aegis of a fragmented government and a shrinking fashion industry, the machines of the Taroni silk factory continue to churn out the swathes of duchesse, taffeta and faille preferred by Valentino, Fendi, Lanvin and the princesses of Europe.

Even for vanguard silk makers like Taroni, increasing energy costs, taxes and a grim domestic economic outlook for Italy make it difficult to grow.

As Italian fashion leaders head to the polls on Feb. 24, they are faced with a choice for prime minister as Silvio Berlusconi returns to the political fore, brushing off sex scandals and a recent tax fraud sentence, squaring off with technocrat Mario Monti, who resigned as prime minister in December after promising to do so after the 2013 budget was passed and Berlusconi’s conservative People of Freedom party withdrew its support for the coalition government.

 

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The time for change seemingly could not be worse for the Italian fashion industry.

“We are not asking a lot from the government, but we are asking not to have to pay costs that prevent us from exporting,” said Taroni president and owner Michele Canepa. “The government needs to crack down on tax evasion and cut public spending.”

In 2012, preliminary data from Italy’s Sistema Moda Italia shows that the number of companies that make up Italy’s textile and clothing sector, excluding leather, dropped to 50,576 from 51,873 in 2011 and the number of employees declined to 430,800 from 446,900. SMI said both numbers reached their lowest levels since the economic boom of the Sixties.

It remains unclear how many companies will close their doors and how many jobs will be lost in 2013, SMI said.

Despite a positive 2012, with about 12 million euros, or $15.6 million at current exchange, in revenue, 78 workers and 54 machines to fuel, Canepa said the company’s energy costs continue to rise. Taroni’s energy bill with gas totals about 20,000 euros, or $26,700, a month, even after having cut costs by installing solar panels on the factory’s roof.

According to Italy’s statistics office, Istat, the unemployment rate has risen to 11.2 percent, and the European Commission expects that percentage will rise to nearly 12 percent by the end of 2014.

Lombardy is not only Italy’s most industrious region, it is also home to the nation’s fashion capital, Milan. In Lombardy alone there are 4,500 workers in cassa integrazione, an Italian term for government-funded wage subsidy, in which workers on permanent contracts receive a large portion of their usual pay. These people are not counted as unemployed when statistics are compiled, but the probability that they will eventually be unemployed is high, explained Italy’s left-wing labor union CGIL.

The organization of industry roundtable talks between universities, public administration leaders, research centers, enterprises and unions is necessary in developing projects aimed at stimulating research and the formation of highly technological districts, as well as establishing more incentives that would encourage companies to invest in technology, explained Lombardy CGIL Textile, Chemical and Energy union coordinator Rosalba Cicero.

More than 25 percent of these workers have been laid off by nearly 60 fashion companies, including some fashion industry pillars like Versace, Ittierre and Marzotto and bankrupt companies like Mariella Burani Fashion Group, said CGIL. In Lombardy alone the fashion sector lost 5 percent of its workforce, or 6,000 workers, between 2009 and 2012, CGIL said.

In Como, Lombardy’s silk hub, the unemployment rate nearly doubled compared with previous years and is now around 5 percent, Canepa said, adding that during his three terms since 1994, Berlusconi did little to help the economy.

By contrast, Berlusconi’s successor, Monti, a former Goldman Sachs adviser, was able to pass his sweeping austerity measures, cut public spending and restore investor confidence. As a result, Italy’s borrowing costs eased. But some industry leaders have been reluctant to support another term because they believe Monti’s measures crippled the sector even further.

Left-wing candidate Pier Luigi Bersani’s campaign has touted his support for workers, which some voters fear may lead to collective wage bargaining, higher taxes on employers and less competitiveness. Buffering criticism, Bersani refers to measures he implemented during his tenure as the minister of economic development in the late 2000s, when he reduced mobile-phone charges and increased the number of taxi licenses. So far his game plan has not been clearly outlined.

While Italy’s big public companies like Salvatore Ferragamo and Luxottica post strong earnings, the smaller companies that service them are fighting an exhausting battle to survive. Observers say their slow demise will eventually hurt the authenticity of the luxury industry, as about 90 percent of all of Italy’s fashion companies are represented by small and medium-size firms.

Preliminary figures show that Italy’s gross domestic product has contracted for six consecutive quarters, falling 0.9 percent in the fourth quarter of 2012 compared with the previous three months, and for the full year dropping 2.2 percent compared with 2011. The economy is forecast to fall 0.5 percent in 2013 compared with a 0.4 percent rise in the entire European Union, according to the EC.

 

“Fashion is a priority. The government has to concern itself with small and medium-size companies in the sector through formation, internationalization and helping companies access lines of credit,” said Florence Mayor Matteo Renzi in a media report last year.

At Taroni, chopping-block-like machine sounds pierce the ear. But even with modern mechanics and computers, the delicate hands of female workers still ensure that every single strand of silk is fed properly into weaving machines and each meter of finished fabric is free of flying lint and random lumps, ensuring the quality that makes Italian products prized the world over.

“These workers and Italy’s fashion industry are more important than one would think. Making up about 13 percent of Italy’s GDP, the fashion and textile industry is worth almost as much as the metal mechanics industry,” Canepa said. “It certainly contributes to Italy’s image overall.”