Inter Press Network

Thursday, September 22, 2005

Economic Brief: Italy's Loss of its Strategic Markets

Drafted By: Federico Bordonaro

On September 14 and 15, Italy's overall economy experienced two potentially decisive events. After almost seven months of struggle, on September 14 the board of Banca Popolare Italiana (B.P.I.) accepted that the Netherlands' ABN Amro acquire B.P.I.'s 29.5 percent stake in Antonveneta, Italy's ninth-largest bank, for about €2.5 billion (US$3.1 billion).

The following day, Russian gas giant Gazprom publicly expressed interest in buying stakes of Italy's SNAM Rete Gas, a company dedicated to natural gas and crude oil provisioning and distribution, created by Italian oil company ENI. Due to Gazprom's financial strength, and because of an Italian law which obliges ENI to sell its stakes in SNAM (now at 51 percent), reducing its shares to 20 percent by 2007, it is likely that the Russian corporation will succeed.

The two financial moves signal a changing scenario in Italy's economy, and will have crucial economic and geopolitical consequences.

Gazprom's Bid for SNAM

Gazprom is already the main gas supplier to Italy. By acquiring 30 percent of SNAM's stakes, the Russian giant will play a relevant strategic role in Italy's gas distribution market. In May 2005, ENI's former CEO, Vittorio Mincato, already sold Gazprom the rights to directly sell two billion cubic meters of gas to Italian consumers. The Russian group, however, appears determined to take control of the whole gas distribution market in Italy.

It is no secret that Gazprom is directly controlled by Moscow, and, more precisely, by President Vladimir Putin and his powerbrokers. In fact, Putin's direct involvement in the corporation's strategies look evident. Since an anti-monopoly Russian law forbids a group to expand its power at home to a certain extent, Gazprom's enormous financial strength is naturally flowing abroad. Germany and Italy seem to be its two main targets, but the strategies are different, although the unifying characteristic of the two enterprises is the Kremlin's active role in them.

Gazprom will benefit from the Russo-German agreement to build an ambitious Baltic pipeline to convoy Russian gas directly to Germany via the Baltic Sea, thus avoiding Russia's geopolitical rival Poland. The project was strongly wanted by German Chancellor Gerhard Schroeder and Putin as the basis for a Russo-German energy strategic partnership. [See: "The Poland-Belarus Controversy and the Battle for Eastern Europe"]

In the Italian case, Gazprom is instead trying to couple its already preponderant role as supplier with a strategic control of gas distribution, a goal announced by Putin himself after his last bilateral talks with Italian Prime Minister Silvio Berlusconi by stating that new investments in the Italian gas distribution network were both in Gazprom's and in Russia's interests.

As ENI's new CEO, Paolo Scaroni, recently highlighted, the European gas market is experiencing a dramatic increase in consumption. In 2004, the 15 western E.U. states consumed around 454 billion cubic meters of gas, but such a figure is expected to rise to 580 billion by 2015. At the same time, European gas production is declining. Russia, Algeria and Norway are now the three main gas suppliers, and the E.U. will depend upon gas imports for 90 percent of its needs in ten years. Russia will play a key-role in this supranational strategic market, but Italy is set to be the first E.U. country to experience foreign leadership in the distribution market as well.

ABN Amro's Bid on Antonveneta and Italy's Banking System

Perhaps the most revolutionary event in the Italian economy has been ABN Amro's success to takeover B.P.I.'s stakes in Antonveneta -- a move which likely opens the way for the Dutch bank's future control over the whole Italian bank. ABN Amro's takeover will be the first cross-border bank takeover, provided it is not prevented by the Bank of Italy which has been dramatically weakened by its governor's -- Antonio Fazio -- involvement in a major scandal. Fazio has allegedly tried to help B.P.I.'s maneuvers to maintain control over Antonveneta, but his phone conversations with B.P.I.'s chief, Giampiero Fiorani, were intercepted by the financial police in July. The incident has damaged both Fazio's and the Bank of Italy's reputations and the country's image as a safe place to do business. However, for the same reasons, it has accelerated the process of dismantling Rome's banking system's "protectionist" tradition.

It is now to be expected that other big foreign banking groups will try to acquire Italian banks. In July, Spain's Banco Bilbao Vizcaya Argentario tried to takeover Italy's Banca Nazionale del Lavoro. The move failed, but ABN Amro's success could change everything.

Moreover, the single currency itself, whose credibility heavily depends upon the ability of capital to flow freely in the European Union, is said to benefit from such market liberalizations.

The Bottom Line

Italy is losing its long-standing state grip on two strategic economic sectors: energy and banks. The opening up of the once unassailable Italian banking system is being warmly welcomed by liberal factions, for they consider such developments the only possible way to revitalize the allegedly limp and inefficient field.

Similarly, liberal economists and many decision-makers consider the foreign takeover of big national companies such as SNAM both inevitable and beneficial because, they argue, foreign investment will be encouraged, and corporate governance will be strategically and financially more transparent and effective. Ironically, the Italian "liberal" turn in the energy market will benefit actors such as Gazprom, whose link with a great power's geopolitical strategy is self-evident.

Such a new Italian economic context comes -- paradoxically -- at a time of growing neo-protectionism, often unspoken or disguised as "economic patriotism," but it also comes in the age of a renewed, intense competition among big corporations to take control over strategic markets. Not only U.S. and E.U.-based groups, but also Russian companies and probably, very soon, big Chinese competitors will try to conquer their share of influence in the Italian markets. [See: "Economic Brief: Economic Nationalism"]

Look for Italy's economic jewels to quickly become the prize of an economic competition whose stakes won't be merely financial, but also geopolitical. Rome's inability to continue its protection of some of its national strategic sectors is a natural consequence of the E.U.'s rules, and will probably further enhance the Europeanist orientation of its elites.