NEW YORK WHOLESALE

As Italy tries to fight its way out of a full-blown recession, the state and local governments are coming up with creative — and some say questionable — sources of revenue.

The latest example comes from Venice, where Benetton, the trendy Italian clothing-maker, is poised to put the city's first shopping mall right on the Grand Canal. Residents are up in arms, but officials say deals like these keep the lagoon city afloat.

A new development plan calls for Dutch architect Rem Koolhaas to overhaul the Fontego dei Tedeschi, a medieval warehouse that once bore frescoes by Titian and Giorgione.

It overlooks the Rialto Bridge and the city's oldest open-air market. Merchants here are exasperated.

Francesco Vianello has run a fruit and vegetable stall for 47 years.

"Whether you're for it or against it, the powerful are going to get what they want anyway," he says. "Just wait and see: In a few years, there won't be anyone left here. Ten years ago, there were twice as many vendors in this market. Now, small businesses are fleeing."

Billed As An Economic Asset

Benetton officials defend the economics of the shopping-mall project.

"Which alternative should be possible ... realistically?" company spokesman Federico Sartor says. "The idea is to have economic activity because economic activity is a positive asset for the city — to have something that is working, making money, that is giving 400 new jobs."

Benetton is not the first fashion house to step in to "save" one of Italy's crumbling monuments.

Last year, Tod's, the Italian luxury leather-goods company, signed a $36 million deal to restore the Colosseum when the city of Rome came up short.

But what's happening in Venice is different. Recently the owners of Gucci, Prada and Benetton have all restored historic buildings here.

But unlike the Colosseum, which still belongs to Rome, in Venice these buildings now belong to Gucci, Prada and Benetton.

"Everything becomes: How much do you pay?" says Paolo Lanapoppi, with the Venice chapter of Italia Nostra, a nonprofit dedicated to protecting Italian heritage. He says deep pockets don't have to consider things like added value for the public good, especially during the euro crisis.

"The problem is if you look at Venice during the last 20 years, you see that it's slowly being transformed into a big shopping center for foreigners," he says. "Last year we had 30 million — 30 million — tourists ... 89,000 per day in a city of 60,000."

A Population Plunge

Just 30 years ago, the population of Venice was 120,000 — twice what it is today, and the steady plunge shows no signs of slowing.

Critics like Lanapoppi argue that the euro crisis is a red herring. The real issue, they say, is that Venice relentlessly caters to tourists' needs while locals watch the city they knew vanish.

"And this is really a problem," says city councilwoman Camilla Seibezzi.

She says tourism has gotten out of control in Venice. But even she is in favor of the Benetton project because, she says, it's the only economically feasible option at a time when the government is under heavy pressure from international creditors to cut city budgets and use the savings to help pay back billions of dollars in loans.

A Growing Unease

"We have a very big problem in Italy and especially in Venice," Seibezzi says, "because to preserve the heritage costs so, so much. But this is not a good excuse. In a couple of years we will have nothing else to sell. So what are we going to do?"

Seibezzi would like to see more resources devoted to other industries that would foster a sustainable way of life. But tourism has the strongest lobbies.

In the meantime, Seibezzi says she's working to make sure Benetton and architect Koolhaas respect the historic integrity of the building.

Stopping the project, she says, won't halt the exodus of citizens or stem the rise of tourism.

But there's a growing unease in Venice and the rest of Italy over what further compromises might be in store for a country unaccustomed to change — but forced to face it.