Effective antitrust authorities are crucial to the working of all modern economies. But Italy, where competition is still a dirty word to many, needs them more than most.

Italy was a late starter in this field. The Italian Antitrust Authority Autorit Garante della Concorrenza e del Mercato (AGCM) was not set up until the start of the 1990s. It has the job of making sure companies do not assume monopolistic positions that would limit consumer choice and enable them to set the prices they like. It also watches out for cartels: groups of companies that collude, rather than compete, and act together as a monopoly would, charging prices that guarantee them all beefy profits.

Italys competition laws are also implemented by regulators that set the rules for sectors where former state monopolies still have strong positions: communications and energy. Like the antitrust body AGCM, the regulators were set up in the 1990s, following the privatisation of companies such as electricity giant ENEL, petroleum and energy conglomerate ENI and Telecom Italia.

The regulators are needed partly because consumer groups do not have the muscle to lobby for their interests in the way that industrial groups or trade unions can. Workers with a grievance can strike and big businesses always have politicians ears but consumers usually have to like what they get or lump it. Whats more, Italian consumers cannot band together when wronged and launch class-action lawsuits not allowed here against companies, unlike their United States counterparts. The energy sector, the motorways and (many) banks and insurance companies were state-owned 15 years ago; now they are private, but competition is scarce and we have the highest prices in Europe, Bruno Tabacci, president of the production activities commission in the chamber of deputies under the old government, admitted.

The recent downturn in Italys economic fortunes has shown that deregulated markets are needed not just for the benefit of the nations consumers. Decades of deep state involvement in the economy and protection of national champions has left Italy ill-equipped for todays highly competitive globalised world. Cosseted companies are struggling to fend off lean Asian rivals on international markets. Economic stagnation is the result. Our system of capitalism has shown that it is not up to the current situation, said Pier Luigi Bersani, the economic affairs spokesperson of the Democratici di Sinistra party. Italian firms need to regain their competitive edge and freer domestic markets are the only way they can do this. So, paradoxically, the producer groups that often try to block competition are perhaps the ones that need it most.

The antitrust authorities have attacked a wide range of producer interests over the last 15 years. These include the worlds of insurance and banking. They have brought actions against giants such as ENEL, ENI and Telecom Italia. There have been some notable successes, such as the communications regulator (AGCOM) forcing mobile phone operators to reduce their rates and getting internet providers to slash the cost of ADSL (broadband) connections. The biggest fine issued by the antitrust authority was a 700 million penalty slapped on a cartel of 38 insurance companies in 2002.

Unfortunately, the antitrust authorities are also having to overcome a series of handicaps. The first is that their weapons are often blunted by the courts, which overturn or reduce the fines they impose. Between 1999 and 2005 700 million of 1.2 billion of fines handed out by the authorities 60 per cent were cancelled by the Lazio regional administrative court (TAR) or by the council of state (consiglio di stato), the highest court for these matters. In many cases, the fines were reduced so much that the deterrent on re-offending was wiped out. In 2004 and 2005, for example, telephone companies managed to get their fines down to 380,000, less than a 1000th of the total mobile phone operators take in a week.

Another complaint is that the antitrust bodies do not have the funding or manpower to do their job. Communications regulator AGCOM, for example, has 250 employees, less than a third of its British equivalent OFCOM, which has an 800-strong workforce. The budget of the antitrust authority AGCM has been cut from 30.9 million in 2001 to 22.3 million in 2006. Five million of that sum will go on rent because the authority does not own its offices. Our duties are increasing and so are our demands, but the funding is going down, explained Fabio Cintioli, secretary general of AGCM.

One of the previous governments solutions was to get the regulators to finance themselves by charging the companies they oversee. Under the terms of the 2006 budget, passed last December, AGCOM will raise part of its funding in this way between 2007 and 2009 and will be 100 per cent privately funded from then on. The danger is that this will lead to chummy relations with the companies monitored, which will become the regulators backers, thus undermining independence, or enable the firms to blackmail the regulator by delaying fee payments. It was not one of the Silvio Berlusconi governments better ideas and it might be an area for the new government to review.