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Italian pension reform may spark “discontent”

ITALY - Moody’s Investor Services says the current reform of the Italian pension system, coming in the midst of a recession, could “spark social discontent”.

The ratings agency, in its annual review of Italy’s credit picture, said the pensions debate launched by the government in February this year “could spark social discontent, especially as it comes during an economic recession”.

Such discontent has been seen in neighbouring France, where unions have protested against the government’s pension reform proposals.

Three of the big Italian unions will be meeting prime minister Maroni on May 6 to discuss the pension reform issue. They have made it clear that if their demands are not met then there will be a national strike.

The Italian debate is scheduled to end by June, Moody’s said. The Italian pension system was first reformed in the 1990s when the defined benefit gave way to a contributory system. "Thanks to this reform, pension expenditure as a percentage of gross domestic product should not increase any further," says Moody’s senior analyst Sara Bertin.

The firm says Italian pension expenditure is already high, “representing around 14% of GDP”.

The agency said Italy’s Aa2 credit rating was “supported by a declining government debt as a percentage of GDP, its membership of the euro zone and its diverse economy”.

It added that the constraints of the Stability and Growth Pact "should limit the potential for Italy to deviate from a virtuous financial path”.

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