Bloomberg News

Selling Drugs in Lido Makes Enemies as Italy Opens Economy

September 02, 2011

(Updates bond yield in seventh paragraph; adds comment from ECB President Trichet in 15th paragraph.)

Sept. 2 (Bloomberg) -- To drugstore owners on Venice’s Lido Island, Caterina Borgo says she’s public enemy number one.

In 2002, Borgo was working as a pharmacist and refused an offer from her employer to buy his business for 700,000 euros ($1 million), the usual way of acquiring a license in Italy to dispense medicines. Borgo waited seven years to open a store that’s allowed to sell non-prescription drugs, creating a new source of competition and upsetting the status quo.

“Other pharmacists in Lido hate us,” said Borgo, 39. “I couldn’t accept the idea that either you inherit a pharmacy or you have to be rich enough to buy the license.”

While Greece started lifting the legal shield for more than 150 jobs two months ago, Italy retains restrictions on who can enter professions. Prime Minister Silvio Berlusconi plans to strip away the protection as he tries to avert a debt crisis by revitalizing an economy that’s trailed the average growth rate for the euro region since its formation.

Fostering competition across the economy would boost growth by as much as 1.8 percentage points a year, according to Antonio Catricala, head of the country’s Antitrust Authority. That includes protected groups such as pharmacists, notaries, accountants and taxi drivers.

Flagging Economy

“A liberalization of professions and more in general of the whole economy may lead to additional growth,” Catricala said in a telephone interview. More competition would “have a positive impact on employment,” as joblessness among young people is about 30 percent, he said.

The yield on Italy’s 10-year government bonds jumped to a record 6.40 percent on Aug. 5 before falling 114 basis points, or 1.14 percentage points, since then as the European Central Bank bought the debt to stabilize euro region markets. The yield was as high as 5.26 percent today, the highest since Aug. 9.

Gross domestic product grew an annual 0.8 percent in the second quarter, the slowest pace since the first three months of 2010 and less than half the average rate for the euro region, according to data from Eurostat in Luxembourg.

The parliament in Rome will vote as early as next week on a plan passed by Berlusconi’s cabinet on Aug. 12 that commits lawmakers to liberalizing the professions within a year. Some barriers, such as compulsory membership of professional groups and tests to join, would require changes to the constitution.

Saving Money

The legislation was included in 45.5 billion euros of tax increases and spending cuts to reach a balanced budget in 2013, and should competition help lower prices, it might help offset some of the austerity measures, according to Fabio Fois, an economist at Barclays Capital in London.

“If next year you are going to pay less for lawyers, accountants, you know, whatever, it’s going to be an increase in surplus of consumers that can help offset a little bit the tightening of fiscal austerity measures,” Fois said.

Data from the Organization for the Economic Cooperation and Development show that Italy has the third-heaviest regulation of professional services in the developed world, after Turkey and Luxembourg. As the access to dozens of jobs is reserved to the lucky few, the lack of competition in the country bearing the world’s third biggest debt is a drag on consumers and fares.

“Without reforms, Italy’s growth potential is poised to remain low,” said Lavinia Santovetti, an economist for Nomura International in London. On Aug. 20, Santovetti and colleagues said that Italy will miss its targets because they are based on growth assumptions that are “too optimistic.”

Trichet’s Potential

Finance Minister Giulio Tremonti told lawmakers on Aug. 11 that a “full liberalization” of professions was requested in a confidential letter to the government signed by ECB President Jean-Claude Trichet and his successor from November, Bank Of Italy Governor Mario Draghi.

“It is essential that all those measures that allow full exploitation of Italy’s medium and long-term economic potential are introduced,” Trichet said in an interview with Il Sole 24 Ore published today. “Today there is a huge potential that is not tapped as it should be.”

Past attempts by national and local authorities to increase competition met opposition.

In November 2007, the City of Rome said it would issue 500 new taxi licenses, promoting cab drivers to stage a wildcat strike, parking their white cars along the roads that wind around the Colosseum during the evening rush hour and bringing the traffic around the historic center to a standstill.

Athens Protest

Drivers in and around Athens blocked approaches to airports and disrupted ferry services in recent weeks to protest the government’s decision to open up more industries to competition. The Greek law came into effect on July 2.

Previous plans in Italy “to liberalize professional services have been stalled for some time and should be speeded up,” the Paris-based OECD said in a report in May.

Borgo, the pharmacist on the Venetian island that hosts the city’s film festival this week, took advantage of a law in 2006 that Berlusconi’s party subsequently tried to reverse.

The measure paved the way for “parafarmacie” and required that their managers had graduated at least five years before and worked for two years in a licensed drugstore. They operate alongside pharmacies like paramedics compared with doctors.

“I joined forces with a former pharmacy trainee and two years ago, we opened a parafarmacia on the high street,” Borgo said by telephone. “Today we make enough money to employ a part-time assistant.”

‘Old Privileges’

The law increased competition in an industry that has annual sales of 19.2 billion euros in Italy, figures from the pharmaceutical industry group Farmindustria show. Since then, almost 3,500 independent drugstores have been opened, currently employing about 7,000 people, according to the Forum Nazionale Parafarmacie group.

A bill put forward three years ago by Senator Luigi D’Ambrosio Lettieri, a member of Berlusconi’s party in Italy’s Upper Chamber, imposed restrictions on the kind and number of medicines new drugstores like the one opened by Borgo can sell.

Lettieri is the vice president of the pharmacist federation, which opposed the creation of parafarmacie. The law still requires a final vote by both houses after being approved by committees.

“Any previous initiatives by lawmakers to block or reduce the size and the scope of liberalizations and restoring old privileges will come to an halt in the light of the government’s” new measures, Catricala said. Those initiatives “won’t be politically compatible any longer,” he added.

On Lido, it’s no surprise Borgo, a mother-of-four who graduated in 1994 and worked first as a researcher for what became GlaxoSmithKline Plc, Europe’s largest drugmaker, has made some enemies in the last three years, she said.

Resistance to change “can be worse than any legal obstacles,” said Borgo.

--Editors: Rodney Jefferson, Andrew Davis

To contact the reporter on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net.

To contact the editor responsible for this story: Andrew Davis at abdavis@bloomberg.net


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