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Governing the ungovernable

20 January 2014 By Hugo Dixon

A weekend pact between Matteo Renzi and Silvio Berlusconi offers new hope to Italy. The constitutional reform deal between the leader of Italy’s largest party and the leader of the opposition addresses one of the country’s biggest problems: its ungovernability. Now Renzi, who runs the centre-left Democratic Party, needs to put his energy behind key economic reforms, especially jobs and public spending.

Italy, where I spent much of last week, has been plagued for years with unstable governments. In part this is because the voting system gives a lot of power to small parties and can lead to conflicting majorities in the two houses of parliament, which have equal power.

The Renzi-Berlusconi deal aims to reinforce the power of larger parties by changing the voting system. It also would demote the upper house so that governments will only need to secure a majority in the lower one. Meanwhile, the two leaders have agreed to cut the power of Italy’s regions – a move which should save money and lead to more stream-lined decision-making.

Mind you, it’s not yet clear that the pact will achieve all this. That’s partly because the details haven’t been published. But it’s also because plans to strengthen the larger parties have been diluted with the aim of getting some of the smaller parties to support the reform.

The key figure here is Angelino Alfano, who broke away from Berlusconi late last year. His splinter group supports the coalition government led by Enrico Letta, who is a member of the Democratic Party but increasingly subservient to Renzi since the latter became leader in December.

In a sop to Alfano, the proposed new voting system would not wipe out all small parties. The consequence, of course, is that smaller groups might still be able to hold to ransom governments that depend on their support. This is mitigated but not completely avoided by a provision that encourages small parties to form coalitions with big ones.

The result of this compromise is that Alfano will probably continue to support the Letta government for another year. But if he doesn’t, that may actually be good for Italy. Assuming Renzi can still ram the new electoral system through parliament with Berlusconi’s support, a new election could then be held. The youthful and energetic Renzi would then be well placed to become prime minister.

The other parts of the constitutional deal -reforming the upper house and the regions – couldn’t be passed before the election. But they could come after.

The most likely scenario, though, is that Letta will continue in office. The question then is whether Renzi will work constructively with him to reform the economy, which is barely stabilising after a devastating multi-year recession and where 41 percent of young people are unemployed.

Renzi has unleashed a constant stream of criticism against the Letta government since he became leader, despite the fact that the two men are from the same party. He has effectively been whipping Letta, accusing him of being a lazy donkey who is not putting enough energy into getting Italy moving.

Such tactics may be good for Renzi’s short-term popularity. But being super-critical of his prime minister – and party colleague – is not the right way to govern the country in the long term.

While it’s true that Letta has not achieved much in his nine months in power, this is partly because for most of that time he was reliant on Berlusconi, who was endlessly sniping from the touch lines. If Renzi follows the same approach, Letta will be so undermined that he won’t achieve much in the next year either.

What the two men now need to do is sit down with Alfano and see if they can agree a detailed programme of government. This should probably include a reshuffle to bring in new blood.

The top priority is jobs. Both Renzi and Letta agree on this. Renzi has called for a “jobs act”. This would cut the “tax wedge” on employment, make it easier for companies to fire workers, close some of the holes in the safety for the jobless and give a stronger incentive for the unemployed to take jobs or training if offered them.

The ideas are all on the right lines. The problem is that Renzi hasn’t spelled out the details, especially on how easy it will be to fire staff. Nor has he said where the money will come from to fund a cut in the tax wedge and improve the safety net.

The obvious answer is spending cuts. The government has, to be fair, set a target of 32 billion euros of annual savings by 2016 and has started analysing where the axe should fall. What’s now needed is detailed agreement between Renzi, Letta and Alfano on actually wielding it.

If Renzi can follow up his constitutional reform deal with Berlusconi with a jobs-and-spending programme with Letta, Italy’s prospects will start looking up for the first time in many years. Renzi should then put away his whip and give Letta his full backing.

But if Renzi cannot get the deal he wants with Letta, he should say openly that he doesn’t have confidence in the government. Letta should then resign, either allowing Renzi to take over without elections or paving the way for new polls. Assuming the weekend deal with Berlusconi over electoral reform sticks, that’s not a scenario to fear.


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