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Alea jacta est

14 February 2014 By Hugo Dixon

When Julius Caesar crossed the Rubicon in his bid to take control of Rome, he is reputed to have said “alea jacta est” (the die is cast). Matteo Renzi, soon-to-be Rome’s new master, has also rolled the dice. In doing so, he is taking big risks. Given Italy’s mess, one can only pray that his gamble pays off.

There are a lot of good things about Renzi, who became leader of the centre-left Democratic Party in a landslide election last December. He is young, energetic and pro-enterprise. He wants to shake up a political and economic system that has been gridlocked for a couple of decades or more – the consequence of which is an economy that has shrunk 9 percent since 2007, youth unemployment of 42 percent and government debt at 133 percent of GDP.

Still, Renzi has embarked upon a high-risk strategy by kicking out the prime minister, Enrico Letta, who is a member of his own party. His majority is unstable, he knows little about governing and he is relying on Silvio Berlusconi, arch-rival of Italy’s centre left, for a critical reform of the constitution.

Renzi’s initial plan was to work with Letta for a year or so and then become prime minister. The idea was that Letta would do some of the dirty work of cleaning up Italy, leaving Renzi to go to new elections as a largely untarnished figure.

An election can’t be called immediately since Italy’s constitutional court has declared the existing voting system unconstitutional. Hence, the importance of Renzi’s pact last month with Berlusconi – which, hopefully, the latter will not renege on. Not only would the new voting system they agreed be constitutional; it would virtually guarantee stable governments instead of the endless merry-go-around that has characterised Italian politics since World War Two.

In recent weeks, though, Renzi has become increasingly frustrated with Letta, whom he has accused of not doing enough to pull the country out of the mire. In particular, he was worried that Letta was slowing down electoral reform, a couple of his confidants say.

Renzi also rightly concluded that he wouldn’t be able to remain untarnished as a back-seat driver. There were already signs that a centre-right coalition might win a snap election, despite Berlusconi’s massive legal problems. In the circumstances, Renzi decided to grab the steering wheel and see if he can drive the car any better.

Renzi’s actions have the virtue of transparency. What’s more, he has some legitimacy to become prime minister: he is the elected leader of the country’s largest party.

The snag is that Renzi previously said he wouldn’t take power in this way. Italy has seen a succession of prime ministers – Letta and, before him, Mario Monti – who didn’t win general elections. Renzi’s elevation therefore smacks of the old way of doing politics, something that undermines his claim to be shaking things up.

Now Renzi has to show he can govern. It won’t be easy. The first problem is that he is stuck with the same unstable coalition that held Letta back. He has to rely not only on a splinter group, led by Angelino Alfano, that broke away from Berlusconi; but also on members of parliament from his own Democratic Party who are further to the left than he is and not his natural allies.

The new prime minister may be able to whip this group into line for the time being. After all, many would lose their seats in a snap election. The worry is that, as the months go on, his coalition will become increasingly fractious and Renzi himself will not be able to threaten an election because he will be suffering from a particularly acute version of mid-term blues.

Whatever Renzi does, there is little chance that Italy can get out of the swamp for at least two years. That’s presumably why he says he wants to govern until 2018 before calling an election. But, even if he can last the course, what will he actually do? Apart from his constitutional reform plans, he has given precious little detail.

The economic priority is to create jobs. 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 net for the jobless and give a stronger incentive for the unemployed to take jobs or training if offered to them.

The ideas are all on the right lines. But 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. Letta set a target of 32 billion euros of annual savings by 2016. Renzi now needs to actually wield the axe.

If the new prime minister plans to stay in government until 2018, he also needs a broader agenda: clean up Italy’s zombie banks; reform the justice system; and an ambitious privatisation programme and maybe even a wealth tax to cut the national debt.

If Renzi can pull all this off, he will be a hero. If he can’t, it’s not clear who else will be able to reform Italy. The country might then have little option but to call in the Troika – the European Commission, the European Central Bank and the International Monetary Fund. That’s not quite the triumvirate Caesar was used to.


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