Italian province of South Tyrol defies the crisis

Square in Bolzano. Photo: Tim Hersevoort

BOLZANO Where Italy’s economy is experiencing hard times,  the Italian province of South Tyrol is still booming. Part of its success lies in the focus on small and medium scale businesses as well as in its far going autonomy. Yet, the small region cannot fully escape from Italy’s problems, fuelling new demands for even more independence from Italy.
By Tim Hersevoort

The city doesn’t come across as an Italian one. Compared to the busy streets of Rome or Milan, there are no honking cars, no loud talking people and everything seems well maintained. In Bolzano*, the capital of the northeastern Italian province of South Tyrol, the streets are clean, the buildings colorful and the cathedral in the heart of the city looks more Gothic than Romanesque. Street signs display names both in German and Italian, and in restaurants there is a widespread choice between pasta’s, pizza’s and schnitzels.

There is a clear reason for all this. South Tyrol (or Alto Adige in Italian) used to be a part of Austria, but was annexed by Italy in 1919, following the end of the First World War. Now, almost a century later, the region is a crossroad between Austria and Italy. It has the Italian way of life, but the Austrian mentality, as many locals describe it.

Economic success

And it’s not only culture and esthetics in the province that differ from the rest of Italy. The Italian way of life and the Austrian mentality have turned South Tyrol in one of the best performing economic provinces in the country. In fact, according to recent figures by the European Union’s statistics bureau Eurostat, South Tyrol only had an unemployment rate of 2,7 per cent in 2010, the lowest of the entire EU. Compared to an overall unemployment rate in the European Union of 9,6 per cent, and 8,4 per cent in Italy, the figure seems astonishing.

Graph GDP per capita Italian regions. Click to enlarge

With an average income of 34.700 euros per head of the population, South Tyrol’s Gross Domestic Product (GDP) per capita is also 40 per cent higher than Italy’s average. It is ranked number 19 in the EU’s list of regions with highest income per head of the population and number 1 in Italy itself.

On top of this, the province has no debt. This stands in stark contrast with Italy’s debt, which amounts to 1,94 trillion euros, or around 120 per cent of the county’s Gross Domestic Product. And it’s one of the reasons why South Tyrol is doing so well, according to its president Luis Durnwalder (see bottom of article for radio interview).

“Because we don’t have any debt we can always keep investing. And especially when times get tough, investment is important.”

Small and medium scale business

Yet, a more important factor explaining South Tyrol’s economic strength might be the province’s focus on small and medium scale businesses, which make up almost all of South Tyrol’s industry. According to Luis Durnwalder, there are only around ten companies with more than a thousand employees in the province. The philosophy behind this, he says, is to keep up the living standard in the countryside. To stop people from moving away from where they live to where they work, the province tries to offer jobs to everybody no farther than 25 kilometers away from their homes. If this standard is not met, the president fears, the countryside will see an exodus of its people to the cities, leaving the structure of villages with their small schools, post offices and community houses to collapse.

Luis Durnwalder, President of South Tyrol. Photo: Tim Hersevoort

“We try to take small businesses to outside the cities, because big companies are not that flexible. They will like to take up office in Bolzano when they are in need of many employees, because that is simply where the people are.”

The small scale approach of South Tyrol’s economy, for example in the tourism sector with its many family owned hotels, has another main advantage regarding the employment rate. Especially in times of crisis. In his hotel Sparerhof in the village of Vilpiano, just 30 minutes outside the capital by train, manager Andreas Sparer is preparing for the coming summer holiday season by having isolation material installed. The hotel is one of the many family owned hotels in the province (the region recorded over 28 million overnight stays in 2009), set up in 1957 by Sparer’s father Willy, who still helps out where he can.

Despite the crisis Andreas Sparer is still doing well, he says, with a record number of visitors in 2011 and hoping for even more this year. But if bad results would flow over to South Tyrol’s small scale industry such as his hotel, measures being taken would be different compared to big companies. “Big hotels work with numbers, I work with individuals. It’s harder to cut or throw someone out when you know them personally,” he says.

Hotel manager Andreas Sparer. Photo: Andreas Sparer

Political stability

South Tyrol has also always profited from its location in the wealthy northern part of Italy, surrounded by other rich European countries and regions as Austria, Switzerland and the southern part of Germany.

But maybe even more important for its success, says Dr. Alex Weissensteiner,  assistant professor at the School of Economics and Management at the Free University of Bolzano, is its stable government. Ever since the first election of the Provincial Council in 1948 the region has been ruled by an absolute majority of the Südtiroler Volkspartei (SVP), or South Tyrolean People’s Party. And ever since 1960 the region has only known two presidents: Silvius Magnago and Luis Durnwalder.

“This stable and big party government speeded up decision making in the region, especially compared to the rest of Italy,” says  Alex Weissensteiner. Since the end of the Second World War, Italy has had more than 60 different governments.

Autonomy from Italy

Yet, the region hasn’t always been thriving. It was once ranked 92 out of around 100 Italian provinces and was suppressed by the Fascist government through a process of Italianization. Among others most German schools were closed, Italian immigrants were encouraged to move to the region and Italian became the exclusive language in public offices. Even the German name Südtirol became forbidden, as well as the newspaper Der Tiroler.

After a struggle for autonomy, even resulting in terrorist attacks on electricity poles and later a number of deaths of members of the Committee for the liberation of South Tyrol (Befreiungsausschuss Südtirol, or BAS) as well as Italian policemen and soldiers, the region in a process lasting from 1972 to 1992 was granted far going autonomy.

Today, among others, South Tyrol pays for its own education, university and health care. It can do so because its autonomy grants it the right to retain 90 per cent of the taxes collected in the region, creating an incentive for people to pay them (something which isn’t always the case in Italy) and to be politically active. Professor Alex Weissensteiner: “If people see that money they pay in taxes is spent on certain projects in the region, they can think about if they support these projects, and then vote for different parties with different ideas.”

Austerity measures

But despite how well South Tyrol might be doing, the region with a population of just 500.000 can’t escape the economic turmoil in large Italy. It is expected to pay 120 million euros extra to the central government in Rome, which under the new prime minister Mario Monti has started trying to get its economy back in order. This money comes on top of South Tyrol’s annual contribution of 500 million euros, it’s predefined 10 per cent which it pays every year to Rome.

According to Durnwalder, the government claims the extra money is a specific expenditure and thus doesn’t qualify under the 10 per cent, something he fiercely disagrees with. Yet, the chances of the new contribution being blocked are slim, meaning that also South Tyrol will have to increase several taxes, as well as being hit by the central government’s austerity measures like raising the pension age.

On the terrace of restaurant Oberhauser, right in the center of the village of Terlano, vice-mayor of the municipality Inge Clementi is enjoying a caffè lungo in the sun when she is joined by mayor Klaus Runer. Terlano is a municipality with around 4200 inhabitants, consisting of the villages Terlano, Vilpiano and Settequerce. Together, mayor and vice-mayor explain the consequences of the upcoming new measures for their community.

Inge Clementi and Klaus Runer, vice-mayor and mayor of Terlano. Photo: Tim Hersevoort

“This year we will have to pay a lot more money to Rome,” says Inge Clementi, “and that will stay so.” Terlano is expected to contribute 800.000 euros extra to the central government in Rome, on top of their regular budget of 800.000 euros to spend in the municipality. Klaus Runer: “With other words, our costs have simply doubled.”

When it comes to talking about what this means for the small village, both politicians pause. “The money will have to come from the people,” says vice-mayor Clementi. “And that means we will have to raise taxes or make other cuts.” She sighs. “But we don’t know where to get it from exactly yet.”

Tax increases

Back in Vilpiano, hotel manager Andres Sparer isn’t in fear of the crisis yet. He is still doing well, he says, with a record number of visitors in 2011 and hoping for even more this year.

But when it comes to the likely increase in taxes for hotels, he is a bit more skeptical and fears some clients might go to Austria instead. “Who knows if they will,” he says, “because I will have to pass an increase in taxes on to my clients. Look, my business clients will still come here, because their appointments are still in South Tyrol. But leisure is something different. Leisure travelers are free to go where they want, and could indeed for instance move to Austria.”

Next to this particular tax increase, real estate and income taxes will also likely be increased, as well as Value Added Tax.

The increase in all these taxes might even have a more devastating effect on South Tyrol. According to professor Alex Weissensteiner, people are going to be motivated to buy goods and services across the border, for example in Austria, which is just a short drive away. “The money they spend will flow out of the province, which will cost South Tyrol quite some money,” he says.

Demands for more self determination

Flags of the European Union, Italy and South Tyrol. Photo: Tim Hersevoort

The drastic economic measures being taken in well fairing South Tyrol to combat Italy’s crisis have sparked a small growth in the support for South Tyrol’s freedom parties. In March, The Libertarians (Die Freiheitlichen) presented a draft constitution for complete independence, which would have to come into existence after passing a referendum. And the South Tyrolean Freedom (Süd-Tiroler Freiheit) party, which advocates reunification with Austria, has seen a record high membership since the beginning of this year.

But most South Tyroleans still see either of these options as unwanted. As does president Luis Durnwalder, who realizes that his province will have to play its part in helping Italy back up its feet.  “When the body is sick, than the arm, the foot and the nose will have to contribute to making it healthy again,” he says.

Yet, Luis Durnwalder realizes that the situation presents South Tyrol with an opportunity to obtain long wanted new autonomy. Self-determination in the fields of among others the postal service, the police and taxes are long wanted wishes of the president. And in return for the extra contribution he would like to see some of these wishes granted. “Look at the post,” he says. “We are a mountainous region, and the state says that there need to be so and so many people living in a village for it to have its own postal office. But a postal office according to us is part of the quality of life, also in small villages.”

“You can’t move European borders”

The president doubts whether the call for more autonomy will be heard in Rome though, knowing his province is small compared to Italy and its 60 million inhabitants. Still, he has faith in prime minister Mario Monti when it comes to handling the crisis. He feels Monti is telling the people the truth. That Italy is sick. And that when it doesn’t take its medicine, consisting of paying taxes and austerity measures, it could die. “Berlusconi never told the people this truth,” he says,  “but it needs to be said.”

For South Tyrol though, this truth has always been evident. Never spending more than it earned, keeping its balance in check and making the best of its hard gained autonomy. Now, the province is to some extent paying the price of Italy’s faults. And although somewhat reluctant, faced with calls for full independence, South Tyrol is willing to do so. Luis Durnwalder: “You can’t move borders anymore these days in Europe. We need to phase out borders, not move them or make new ones with our own state.”

*All cities and villages in South Tyrol are addressed by their Italian name, unless stated differently in the text.

Click here for radio interview with President Luis Durnwalder


About T Hersevoort