International Outlook: Global Wrapup
`CLEAN HANDS': WHO'S NEXT?
Italian big business is being drawn deeper and deeper into the country's fast-growing political-corruption scandal. Shock waves rocked boardrooms on Feb. 22, when two top executives at auto giant Fiat, Italy's largest corporation, were arrested for allegedly paying kickbacks. Up until now, the unprecedented "Operation Clean Hands" criminal probe has targeted mostly the scores of politicians who allegedly took bribes or peddled influence (BW-Mar.1).
The Fiat busts, which included the chief financial officer, take the investigation to a new level. Fiat has long been a political and industrial powerhouse. With its $40 billion in sales, the company has been the uncontested leader of big business in postwar Italy.
By going after high-level Fiat executives, Italian magistrates are showing that few are likely to be spared. Already, dozens of companies listed on the Milan stock exchange have been directly or indirectly touched by the scandal. Investigators now suspect that massive kickbacks played a role when the state-owned energy group ENI paid $1.9 billion to buy asset controlled by Montedison, the leading Italian chemical company. Montedison is controlled by the Ferruzzi agro-industrial empire.
The corruption probe and the political crisis it has sparked are making an already anemic business climate worse. Thanks to a steady collapse in the value fo the lira since last fall, inflation is now showing signs of reigniting. And the climate of uncertainty means capital investment could drop by as much as 3% this year.
Fiat, for example, has been rapidly losing market share in its once-protected home turf, as competitors such as Ford, General Motors, and Peugeot muscle in. Fiat is betting heavily on new models, which are due to start rolling out by next summer. Executives now worry that getting involved in the scandal could harm European marketing efforts.Edited by Stanley Reed