Matteo Renzi, Italy’s youthful and reform-minded prime minister, has been dubbed il rottamatore or “the scrapper”, for the way he has gone about transforming the country’s staid economic system and gridlocked political institutions.
But nine months into his job, he has taken on another moniker for himself. “Sometimes I feel like a Post-it note,” he explained to a group of business people in Brescia this month, “because my job is to remind Italy of who we are.”
However, the eurozone’s third-largest economy has failed to take off under his watch, taking some of the shine off the 39-year-old former mayor of Florence and heaping pressure on him to translate his lofty goals into concrete legislative victories – and quickly.As he seeks to awaken Italians from decades of political and economic stupor, Mr Renzi has set out to overhaul the country’s sclerotic labour laws, its clunky civil justice system and its expensive public administration. His prescriptions have earned him widespread support among Italians yearning for a radical transformation – and a few enemies fearful of what it might entail.
They have also raised hopes, from Brussels to Berlin, that Rome finally has a leader with both the political will and the popular backing needed to enact policies they have long demanded.
“My sense is that Renzi is giving a dynamism to Italy that it didn’t have before and moving things in the right direction. But that’s not enough and when you look at the [economic] numbers they tell us that the results aren’t there,” says Andrea Montanino, director of global business and economics at the Atlantic Council in Washington, and former executive director for Italy at the International Monetary Fund.
When Mr Renzi gained power in February, replacing Enrico Letta through a coup within his Democratic party, he was expected to ride a wave of improving economic performance that would help build support for his reforms. The government had projected that, after two consecutive years of contraction, Italy would return to 0.8 per cent gross domestic product growth in 2014.
But by the summer it was apparent that those expectations were wildly optimistic, as the global economy slowed and the Ukraine crisis hurt Italy’s export-heavy economy.
Now, it seems Mr Renzi will have to settle for a decline in GDP of about 0.4 per cent this year – which at best means the Italian economy is shrinking more slowly than in previous years. Third-quarter GDP figures will be released tomorrow, offering the latest verdict on the country’s economic performance.
It would have been unfair to expect Mr Renzi to engineer an immediate turnround. His aides warn the impact of his policies should be judged over years, given the depth of Italy’s decades-old economic problems. They also insist the Renzi agenda has not been derailed by recent poor growth.
“We are not happy that the outlook has worsened,” says Marco Simoni, one of Mr Renzi’s top economic advisers and a professor at the London School of Economics. “We would much prefer a positive number. But these differences are not meaningful from the point of view of policy making.”
There are, however, signs that the absence of an Italian economic recovery is changing the equation for Mr Renzi. It has certainly increased the pressure on him to accelerate his reforms – both domestically and internationally.
At home, he has the backing of the Italian business community. “[He] has taken on the heavy burden of leading Italy away from outdated rules and cultures that would lead us to an unstoppable decline,” says Giorgio Squinzi, president of Confindustria, Italy’s most influential business group. “We need to be grateful for this hard work.”
But this support could change if there is no tangible improvement and there have already been some signs of impatience.
Labour pains
In September, as the outlook soured, Mr Renzi launched his push for labour market reform designed to make it easier for companies to hire and fire workers, even at the cost of taking on the trade unions and the leftwing of his own party. But the sluggish economy may make it tougher for him to close the deal, or could lead to a watered-down version of the legislation, if his opponents sense he is in a weaker position.
“It makes everything more difficult. To impose tough changes you often need a crisis but it is easier to reform in the context of positive prospects,” says Riccardo Barbieri, chief European economist at Mizuho International in London.
Mr Renzi notched up a big win last month when the framework of the new labour law was approved by the Italian senate, but it has yet to receive a green light from the lower house of parliament. Even if it passes by the end of the year as predicted by Mr Renzi, all the crucial details of the plan will need to be filled in by implementing legislation, which could take months.
“The labour reform was initially put on hold and the framework law introduced is too vague. If Renzi wanted to give a sense of real change, he should have moved sooner,” says Mr Barbieri.
Italy’s poor economic performance has also worsened the country’s fiscal position. Its indebtedness as a share of GDP has continued to rise to 133 per cent, leaving Mr Renzi with limited options to stimulate the economy.
His latest budget – which offered more tax cuts than spending cuts – only narrowly passed muster with the outgoing EU commission and awaits a verdict as early as this month from the newly appointed one led by Jean-Claude Juncker. As part of the deal, Italy agreed to a small 0.3 per cent decrease in its structural budget deficit that was not as much as Brussels wanted, but more than Italy desired.
As Mr Renzi has tried to fight austerity and create more fiscal flexibility he has clashed publicly with Angela Merkel, the German chancellor, most notably last month after her quip that European economies should do their “homework”. Mr Renzi responded that Italy was not a “schoolboy”.
Earlier this month, he traded barbs with Mr Juncker after saying that even the EU’s founding fathers would “become eurosceptic” in the face of the bloc’s bureaucrats.
Bargaining with Brussels
Even so, European observers of Mr Renzi say that so far he has been fairly adept at getting his way with Brussels, alternating the tough rhetoric designed for a domestic audience with quiet behind-the-scenes negotiating on the numbers. But his standing in Europe could also suffer if the economy fails to grow and reforms falter.
“He has managed the relationship with the EU skilfully,” says Olli Rehn, a Finnish member of the European parliament and former EU commissioner for economic and financial affairs. “But I’m not sure that fighting for a few decimal points on the budget is the right battle instead of intensifying reforms.”
If Italy’s economic difficulties persist or worsen, there is speculation it could tip Mr Renzi into making a bet on new elections, possibly next year. The current Italian parliament is scheduled to stay in power until 2018, but its composition is unfavourable to the prime minister, who is governing with a slim majority.
Moreover, new elections could plunge Italy back into political instability, which Mr Renzi is reluctant to do. But if his support begins to fade on the back of a weaker economy, and he feels his reform agenda is being stymied in parliament, he might try to capitalise on his strong position to forge a more friendly legislature for the next five years.
Speculation about an early poll has been stoked by negotiations between Mr Renzi and Silvio Berlusconi, the former prime minister and leader of the centre-right Forza Italia party, over a new electoral law that would give more seats to winning parties and coalitions. The two reached a deal late on Wednesday, and if approved by parliament it would make it make it easier for Mr Renzi to govern if he prevailed in an election.
Mr Renzi remains personally popular, while his Democratic party is polling close to its record highs. There is no credible challenger to his power emerging on the centre-right, and the populist Five Star Movement led by former comedian Beppe Grillo has lost steam.
“Renzi’s opponents can slow him down but they cannot stop him,” says Roberto d’Alimonte, a political science professor at Luiss, a university in Rome. “He has widespread popular support and there is no alternative.”
While it has slipped since February, his personal approval rating remains at a healthy 54 per cent. But recent polls suggest the lack of an economic recovery is beginning to hit home. One Ipsos poll found that just 16 per cent of Italians believe the economy has improved since he took power, with 25 per cent saying it has worsened.
Investing in the PM
“There was a big investment in Renzi by the Italian people – based on hope,” says Luca Comodo, a director of political and social polling at Ipsos in Milan. “But things have changed a little this autumn – they expected a minimal amount of recovery, yet the outlook got worse, the condition of many families remains difficult and faith in Renzi has dropped.”
Mr Renzi’s allies seem unfazed, however. “Italy has been in a context of extremely slow growth for such a long time that it is debilitating,” says Mr Simoni. “The awareness of the need for change is so high that I don’t think we have a short window. This exercise is what the population is asking for.”
As he faced the business owners and managers in Brescia last week, Mr Renzi betrayed no sense of political fragility and continued to feed them expressions of optimism despite his country’s ailing economy and anxious spirit.
“If we do what we are capable of doing, Italy will be a locomotive in Europe over the next few years,” he said, offering the audience a prospect that seems far off today. “This is an insane opportunity, and to not grab it would be a huge mistake for us and our children.”
James Politi
Fonte: FT
