ROME—Italian Prime Minister Enrico Letta announced plans to resign, clearing the way for the ascent of Matteo Renzi, the young, center-left leader who has electrified Italian politics with promises to shake up Italy's sclerotic political system and reverse an alarming decline of the euro zone's third-largest economy.
Mr. Letta said he would tender his resignation to Italian President Giorgio Napolitano Friday, succumbing to months of criticism from party rival Mr. Renzi, the 39-year-old mayor of Florence and new chief of the Democratic Party, Italy's largest political group.
Mr. Letta's departure will bring to an end a 10-month-old government that has teetered since its formation last spring and has come under fire for failing to combat the worst economic crisis Italy has faced since the war.
Mr. Napolitano is expected to accept Mr. Letta's resignation Friday, after which he would hold consultations with the major parties, possibly starting as soon as this weekend. He then could ask Mr. Renzi to form a new government. If successful, Mr. Renzi could become prime minister by month's end.
"We are at a crossroads," said Mr. Renzi, who shunned a tie and wore an open-necked shirt for his nationally televised speech to the party leadership Thursday. "I'm asking you to take the road less traveled."
Mr. Renzi has quickly ascended to lead Italy's left since he burst onto the political scene with his election as Florence's mayor in 2009, and won national attention for his calls for an older generation of leaders to step aside. His youthful political style and outsider status has struck a chord as public frustration runs high with a political class that has been tarnished by frequent corruption scandals and blasted as out of touch at a time of economic distress for many Italians.
"People are losing faith that things can change. That's the problem with Italy," said Beppe Severgnini, one of the country's leading political commentators. "Renzi is the last chance. If he fails, I'm really worried," he says.
Supporters hope that Mr. Renzi, surrounded by a passel of youthful advisers, can use his crossover appeal and high popularity to push through a platform of tax cuts and more flexible labor laws. Indeed, Mr. Renzi, who has few ties to powerful interest groups such as Italy's labor unions, has said he is looking to strike a new pro-market path that draws inspiration from former U.K. Prime Minister Tony Blair's shake-up of Britain's Labour Party.
Italy is badly in need of a new course. The euro zone's third-largest economy is in the grip of a downturn that has exposed deep shortcomings of its economic, political and social system. Italy routinely ranks near the bottom of a host of economic and institutional rankings. Its bloated bureaucracy, overregulated markets, crushing payroll taxes and high rates of tax evasion have largely defeated efforts at reform.
The size of Italy's economy, and of its €2 trillion ($2.7 billion) national debt, mean that the whole of Europe has a large stake in its fortunes. If the country can't turn itself around, it could eventually pose a fresh test for the survival of the euro, many economists say.
Its failure to fix its many problems has left the country trailing smaller rivals such as Spain, which has acted more aggressively in reforming labor laws and attracting fresh international investment amid a new surge in exports. By contrast, foreign direct investment flowing into Italy between 2005 and 2011 was about a third the level of the euro-zone average, according to the International Monetary Fund.
Without big structural overhauls, the economy will expand by only about 0.5% annually until 2018, according to the IMF. Italy's economy has shrunk by nearly 9% since 2008.
Mr. Renzi proposes pushing through bold cuts in taxes and overhauling public spending, while at the same time asking the EU to temporarily loosen budget deficit limits while he steers labor-market liberalization. Italy's enormous payroll and business taxes together take about two-thirds of a company's gross earnings on average, among the highest share in the West.
At the same time, he wants to ease the stringent hiring and firing rules that have contributed to a doubling of the unemployment rate since 2007 and driven youth unemployment to 40%. In exchange, he would push for the creation of broad-based unemployment benefits, which Italy currently lacks.
"We're in a crisis, so we need to move faster, as in now," said Filippo Taddei, Mr. Renzi's economic adviser, who earned his doctorate at Columbia University. "But it makes no sense to talk of labor reform without addressing the related issues of welfare, taxation and the question of what Italy's productive identity should be."
Given the daunting task of overhauling Italy's economy, Mr. Renzi's choice for economic minister will be closely watched. One possible candidate is Lucrezia Reichlin, former head of research at the European Central Bank and a former adviser at the Federal Reserve. Another is Lorenzo Bini Smaghi, a former member of the ECB's executive council who gained attention for arguing that austerity policies in Europe have been deployed as a poor substitute to making structural reforms.
But any attempt at economic reform in Italy must be underpinned by an overhaul of a political system that has produced more than 60 governments since the war, many too weak to push though painful reforms.
Mr. Renzi is spearheading an ambitious attempt at changing an electoral law that leaves governments vulnerable to the whim of smaller parties and produced a deadlocked parliament after last year's national elections. He struck a bargain with conservative leader Silvio Berlusconi on a new electoral law that is currently under debate. He has also called for a drastic reduction in the size of Italy's unwieldy parliament, which counts nearly 1,000 representatives.
On Thursday, he suggested an aim to govern for the balance of the current parliament's term, which ends in 2018, giving him more time to push through big changes.
While hopes that Mr. Renzi will succeed are running high, Italy's fractious system has devoured other would-be reformers over the years.The Tuscan politician remains untested on the national stage, having until now only run Florence—a comparatively well-off city of just 366,000 people—for five years.
Moreover, he risks compromising his image as a new force by taking the helm of the government without a popular vote—Italy's third unelected prime minister in little more than two years. Mr. Renzi scores high in national opinion polls. But a survey this week from the Piepoli Institute showed that only around one in six Italians approve of Mr. Renzi becoming prime minister without a vote.
He could also fall victim to the parliamentary infighting that has defeated many of his predecessors. Indeed, he needs to recruit support from parties on the far Left as well as the antiestablishment Five Star Movement headed by comic Beppe Grillo if he hopes to have a stronger majority than Mr. Letta enjoyed. A major test as to whether his support can cross party lines will come with the European elections in May.
—Marcus Walker
contributed to this article.
contributed to this article.
4 comments:
wonder how long it will take before we come round to realising that Annual GDP growth of <1% in Europe will be with us now for decades, if not generations. Readily available coal, oil and easy economic advancement through the enslavement of others elsewhere in the world is no longer just a European/North American perogative.
The sooner we accept this the sooner we can move on and focus on making our lives better to live rather than simply economic growth at any cost.
That said, both the headline GDP and the detailed breakdown of the data suggest that the eurozone is still a long, long way from returning to good health.
This is true. But since it is genuine GDP and not built on sub-prime mortgage debt as in the UK it's a step in the right direction as opposed to the UK's backward step tp pre-2008. But then that's the only step the UK economy can take, backwards, as it has not faced up to any of the problems that led to the crash in the first place.
Taking advice fom the Brits on economics is like taking advice on child-care from Josef Fritzel.
There were three things to welcome in the data for the final three months of 2013: the increase in activity was slightly higher than forecast, it was a generalised pickup, and there were tentative signs of a recovery in investment.
That said, both the headline GDP and the detailed breakdown of the data suggest that the eurozone is still a long, long way from returning to good health. Quarterly growth of 0.3% is half the pre-crisis trend and not nearly strong enough to make a real dent in an unemployment rate in excess of 12%.
Eurozone growth is also heavily dependent on exports. That is true not just of Germany, but also of France and the Netherlands, all of which registered better than predicted performances in late 2013. Consumer spending remains weak, hardly a surprise given job insecurity and austerity programmes.
Even as the stock market seems to be coming back from a rough start to 2014, Dan Dicker of MercBloc warns that commodities are telling a much scarier story. “I’ve never seen a recovery, except for this one, that hasn’t included a rally in the base metals like copper, zinc, [and] tin,” he tells Breakout’s Jeff Macke.
In much the same way Dicker looks to coal to further back up the scenario. ”If you look over the last three years there have been no worse stocks in the world than coal stocks and miner stocks...If you can’t get a rally in coal when temperatures are below ten degrees in Atlanta during the winter, you’ve gotta give up on some of these commodities and these are scary to look at.”
For Dicker this all means that, at some point, it will all catch up with us. “There’s gonna come a time,” he says, “when interest rates go up and when the story commodities are telling us right now will turn out to be a reality and a bad one.”
So where should you hide out when the shift finally hits? “As the stock market comes down there are still quality companies to be bought that are delivering a 5% dividend.” If you want a name Dicker, who admits to liking oil, points to BP (BP).
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