Battle-scarred Italian town now defeated by debt

Depleted funds

Cassino started losing money on the swap with the third half-yearly payment, paying about 2 million euros after Libor soared, according to police testimony. That depleted funds intended for sanitation and road work that the city raises from parking tickets and federal grants.

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The transaction was presented as advantageous to the municipality at the time, said Volante, who worked as a city culture chief when Bear Stearns pitched the deal.

For Cassino, whose rundown postwar architecture bears little of the ancient charm of neighboring towns, the challenge now is to cut services without damaging the most vulnerable residents, said Danilo Grossi, the city’s education chief.

A new administration, which took over after May elections, will boost charges for the city-run nursery starting next year to help pay the 900,000 euros it costs to operate annually, said Grossi. Talks with the families have begun, he said. The town is still grappling with a shortfall that in 2010 forced out the previous administration and led the federal government to take financial control of the municipality.

Cassino’s pain increased as Italy’s economy contracted in the third quarter, signaling that the country may have entered its fifth recession since 2001. Facing soaring borrowing costs amid investor concern that the nation may struggle to repay its debt, Prime Minister Mario Monti’s government is adopting austerity measures that may further weigh on growth.

While Cassino eventually extracted itself from the swap, the damage may be lasting, according to Giuseppe Lauro, a retired manager for Italy’s largest power company, Enel, who volunteers for the church-sponsored charity Caritas Italiana. The shrinking local economy and cuts in city spending are creating a growing class of the poor, he said.

On a foggy December morning, as local politicians were busy hosting Gianfranco Fini, speaker of Parliament’s lower house, to mark the 150th anniversary of the nation’s unification with songs in the town’s Teatro Manzoni, Lauro was looking after the poor, picking up the pieces of the city’s financial wreckage.

About half of those who sought assistance from Caritas in Cassino for the first time in 2009 were of working age and wanted help with paying bills and food and clothes, a 2009 study by the charity showed. More than half of those who relied on Caritas were below 40.

“We need more city funds,” Lauro, 66, said in an interview at the charity’s shelter, a few hundred yards from the town hall. “The city’s demise means there are new poor, and they’re younger. They need jobs.”