Euroland Municipal Bonds: New city states
Eighty kilometres from Florence, across the Appenine mountains, lies Bologna. This even wealthier city is famed for its food. It's also known as l'Italia che funziona - the Italy that works. Decades of communist government (Italian-style communism, that is) kept it lean and efficient while in most of Italy public administration slid into corruption and waste. It avoided the country's disease of chronic political instability. "In 54 years, we have had five mayors, from one party," notes Flavio Delbono, Bologna's finance councillor and a professor of economics at the city's international campus of Johns Hopkins University.
Delbono's job includes funding the municipal investment programme, worth about L150 billion in 1998. Last year, some of this was self-financed, about L37 billion came from banks, and about L70 billion came from two bonds, issued off an MTN shelf that was prepared by Goldman Sachs.
Historically, Bologna borrowed mainly from the state-owned Cassa dei Depositi e Prestiti. But its role as lender to local authorities is declining. Delbono says: "Until a couple of years ago, it was a tricky and inflexible mechanism.