Italian government's takeover of the nation’s highways sends a troubling message to investors

See Italy Draws a Line Under Genoa Tragedy, Shunting Aside the Benettons by Elisabetta Povoledo of The NY Times. Excerpts:

"For Five Star, the accord is a political triumph, a trophy to exhibit to its dwindling supporters ahead of elections in September in the Liguria region, where Genoa is the capital. But some critics say that the ways Autostrade’s contract was changed by the government has sent a troubling message to potential investors in a country that has long shown itself capricious about business rules.

There was also the question of whether the government was in fact up to running an aging highway and infrastructure system badly in need of investment — one of the reasons its management had been privatized in the first place."

"One of the biggest obstacles to wresting Autostrade from the Benettons was that their original contract stipulated that the government pay them out if the agreement was terminated before its scheduled end in 2038.

That would have required the government to pay Autostrade some 20 billion euros, around $23.6 billion, to go away — a fact that drew considerable outrage in Italy when it came to light in the tragedy’s aftermath.

The Five Star government’s remedy was simply to pass a law in December — without negotiating with the company — that vastly diminished the payout, reducing it to about seven billion euros."

"“The way the whole story was managed, in my view, still leaves some big questions as for any future government intervention on regulated businesses,” Lorenzo Codogno, former chief economist of the Italian treasury and currently of LC Macro Advisors, wrote in a note."

"“As it is, Italy is widely perceived as unreliable because of its inefficient bureaucracy and slow tribunals, not to mention high taxes and sudden changes in industrial and regulatory policies,” said Marco Sebastiani, an economics professor at Tor Vergata University in Rome.

But the government sent an even more ominous message by issuing laws modifying its contracts with Autostrade, “changing the rules while the game was still being played,” he said."

"In the end, what emerges, said Mr. Mingardi of the Bruno Leoni think tank, is “that in Italy, you do business only if you are a friend of the government, and at that point, it’s better to do business with the government.”"