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Italy’s two chances

2 Dec 2013 By Hugo Dixon

Italy seems continually condemned to disappoint. The economy has barely grown in 20 years. The younger generation is languishing without opportunity: youth unemployment stands at 41 percent. So many chances to reform the country have been wasted – and many by Silvio Berlusconi, who was finally expelled from the Senate last week after being convicted of tax fraud.

The country now has two chances to reform. The first is that Enrico Letta, the prime minister, will be emboldened to push through changes now that Berlusconi has been sent packing. If he still can’t, Matteo Renzi – who is expected to be chosen leader of the centre-left Democrats on Sunday – should force elections and show he is as radical in deed as he is in words.

Look first at Letta. He is an intelligent centrist from the Democratic party. But, since he became prime minister in April after an indecisive election result, he has not achieved much. This is largely because his government had to rely on Berlusconi’s centre-right party. The two groups found it virtually impossible to agree on anything.

True, Letta has started to clean up Italy’s corrupt political system and to unblock the country’s civil justice system, where cases can languish for years. But he was forced to repeal a property tax. This left a hole in the public finances, meaning Letta was unable to cut employment taxes more decisively and so do more to tackle youth unemployment.

Meanwhile, difficulties continue to mount. Although there is some hope that the economy will creep back into growth in 2014, debt has continued to rise this year. It is forecast to end 2013 at 133 percent of GDP – a level right at the edge of what might be considered sustainable.

Letta’s main achievement has been to survive Berlusconi’s ousting from parliament. This was only possible because Angelino Alfano, Berlusconi’s main lieutenant, has continued to back Letta with a splinter group of parliamentarians. But this victory will amount to nothing unless Letta and Alfano, who have a good personal relationship, agree to push through the reforms Italy desperately needs.

The wish-list is not hard to draw up: ambitious privatisation to bring down the debt; cuts in employment taxes and labour reform to create jobs; reductions in wasteful public spending; electoral reform to deliver stable governments; liberalisation of product markets to boost Italy’s growth potential; recapitalisation of the banks so they can support economic recovery; and further reform of the justice system.

The question is whether Letta can now embrace such an agenda or whether he will continue to be stymied by vested interests on both the left and right of the political spectrum.

There are some hopeful signs. Letta said last week he will ask parliament for a new vote of confidence, based on the government’s agenda for 2014. Though he hasn’t yet spelt out what this would be, he has said he will aim to stimulate Italy’s stagnant economy and push for institutional reforms.

This is Letta’s chance to show he means business. If he can come up with a convincing plan, great. If not, Renzi is the best hope for reform. The mayor of Florence seems set to win leadership of the Democrats in Sunday’s primary election. He could even win a landslide.

Renzi, who is a centrist, talks a good game. He is calling for “rottamazione” – or scrapping the old system. He is young, charismatic and popular not just on the left but across the political spectrum. Some see him as Italy’s Tony Blair – a man who can take his party by the scruff of the neck and drag it into the modern age. Others worry he is more like Nicolas Sarkozy – who grandly promised “rupture” when he became president of France, only to preside over business as usual.

At the moment, Renzi seems happy to let Letta have a chance to prove that he can reform Italy now he has got Berlusconi off his back. But he is also putting pressure on Letta to deliver. His main card is the threat to call an early election.

At present, the centre-left and the centre-right parties are neck and neck in the opinion polls. If that doesn’t change, it will be too risky for Renzi to push for elections as there would then be every chance of another messy stalemate.

But some analysts expect the centre-left to shoot ahead once Renzi is leader. If so, the Florence mayor can play his card. A threat to call elections would then not only concentrate Letta’s mind; it might also work wonders with Alfano, who presumably wouldn’t want a snap election in which he was routed and turfed out of government.

If Letta still wasn’t able to deliver and Renzi did force an election, he might win a clear majority. He would then have to show that he was not, as Texans say, all hat and no cattle.

There are, of course, many ways that both of these rosy scenarios – reformist governments led by either Letta or Renzi – could be frustrated. To name just three: Letta might promise reform and fail to deliver; Renzi might force an election and fail to win a clear majority; even if he didn’t, he might lack the guts or skill to follow things through.

Still, the end of the Berlusconi era has given Italy two new chances. It would be crying shame if it wasted them both.


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