Despite his lack of national political experience, new Italian Prime Minister Matteo Renzi is off to a strong start; he has reached a deal with Berlusconi for a new electoral law and a repositioning of the Senate and has proposed a comprehensive four-month reform program featuring a new electoral law, reforms to the labor market, and changes in public administration and the tax system. Nevertheless, the new Prime Minister has significant challenges before him.
Italy has seen three different governments in the last three years and is struggling with an economic crisis, the harsh economic conditions fueling the resurgence of political instability. Former Italian Prime Minister Silvio Berlusconi, who was in power when the financial turmoil hit Italy in 2008, spent the following three years simply denying that there was such a crisis. His cabinet experienced parliamentary deadlock, and yields on governments bonds skyrocketed. Finally, Berlusconi had to resign in November 2011 when the emergency in Italy reached its apex, precipitating rumors of a generalized default. Berlusconi’s immediate successors, Mario Monti and Enrico Letta, managed to keep the budget deficit within the European Union’s parameters in both 2012 and 2013. This kept speculators at bay, and yields on Italian bond returned under control.
Though Monti and Letta put Italy’s economy back on track, they were forced to increase taxation, enact austerity programs as requested by the European Union, and retrench welfare. A perfect Catch-22 situation resulted in a dramatic rise in unemployment (12.9 percent in January) and depressed an already sick economy. The public debt plunged at €2 trillion, the gross domestic product to deficit ratio rose from 126 percent in 2008 to 133 percent in 2013. Since 2008, Italy has fallen 8 percent off its then economic output and 25 percent off the same year’s industrial production. In the fourth quarter of 2013, the economy grew 0.1 percent, with a negligible 0.6 percent forecasted in 2014. With these numbers, Italy is at risk of becoming an industrial periphery of economic powerhouses Germany and China.
Moreover, the social and economic emergency continued worsening as political infighting, obstruction, and other delays stalled Monti and Letta, as well as Berlusconi earlier. These obstacles prevented the delivery of much-needed reforms to address an out-of-date political system, longstanding structural problems, low productivity, lack of competitiveness, and entrenched bureaucracy.
Renzi vindicated his takeover of Parliament by highlighting the country’s need to emerge from the crisis, mentioning that “Italy cannot go on for months or years with this uncertainty, instability and quagmire.” He advocates widespread and radical economic reforms, which include paying all public sector debts to private companies, labor market reforms, and tax cuts. However, this is easier said than done. Some rough estimates calculate that this macroeconomic adjustment, even if accompanied by spending cuts and privatizations, will cost at least €100 billion. Given the troubled situation described above, it is going to be exceedingly difficult for Renzi to make the accounting work.
Shaky leadership could further complicate Italy’s route to economic recovery. Renzi picked Pier Carlo Padoan, Deputy Secretary-General of the Organization for Economic Cooperation and Development, as his Minister of Economy. Padoan is the fifth consecutive “technocrat” serving in that capacity during times of duress. As short-lived governments are less likely to provide effective policymaking and consistent outputs than stable ones, the rotation of five seasonal Ministers of the Economy during the financial mess represents a perfect recipe for disaster in a country already plagued by long-lasting cabinet instability.
On the foreign policy side, Renzi wants to reverse the austerity course imposed by the European Union. In exchange for domestic reforms, he plans to ask for authorization to breach the tough EU budget rules in order to spur economic growth. However, the European Union has repeatedly warned against any relaxation of rules, especially for unreliable and elusive countries like Italy. “We all know Italy has a very high level of public debt, and piling new debt on top of this old debt does not seem to improve the economic competitiveness of Italy,” said the EU Commissioner for Economic and Monetary Affairs. Hence, Italy is unlikely to qualify for more lenient terms, such as those granted to France and Spain after they had made significant cuts in their deficits from the inception of the crisis.
Thus, Renzi’s best option is to implement reforms in the following months and then make a plea for a relaxation of budget rules when Italy assumes presidency of the European Union in the second semester of 2014. However, given the biblical times required by Italian politics to get things done, Renzi’s chance to reverse the austerity regime in the European Union is minimal.
Aside from his economic woes, Renzi will also face internal political challenges. Given the tough methods he used to clear his path to national office, he has antagonized many within his party—any one of whom could stab him in the back in the future. Renzi often repeated that he would only seek office through elections and not the back door. Days before “cannibalizing” Letta in a party-engineered coup that recalled a Soviet politburo ousting, Renzi started a Twitter hashtag “EnricoKeepCalm,” then he joked on television, “Nobody wants to fire you.” Not many people in Italy, including Renzi’s supporters, have understood the reasons of this plot, which has called Renzi’s sincerity and honorability into question. Renzi also stated that he would never form a coalition with center-right rivals. Nevertheless, the coalition that supports Renzi also supports Monti and Letta, featuring the New Center-Right, whose support is vital for Renzi.
Though Italy is still a parliamentary system, government reshuffling and behind-the-scenes orchestration of new executive officials were the norm throughout Italy’s First Republic period (1947 to 1992). Today, Renzi’s cabinet is a little bit more than a reshuffle and a little less than a brand new government, illustrating how unstable his government actually is. Several ministers were confirmed, while others were appointed to satisfy all parties. Renzi himself packed the government with his staff. He is the third prime minister nominated without having won an election. Moreover, Renzi has to rely on the same squabbling coalition that has jammed Monti and Letta. Is it realistic to think that the same parties will agree on an effective program under the Renzi tenure? Or, once again, will they endlessly bargain, quarrel, and recur to overlapping vetoes for their own sakes, or request for a reshuffle to get more posts to neutralize Renzi?
So far, Renzi has effectively sold his message to the public by coupling it with a sense of urgency, dynamism, energy, and enthusiasm. The question is whether he will be able to steering policy making effectively on a daily basis. Does Renzi have a sufficient understanding of what needs to be done? Or will he prove to be desperately unprepared, at a lack for international experience, unable to manage complex macro financial issues, and ultimately better at making promises than keeping them?
In any case, good luck Matteo.
Alessandro Cagossi is a Ph.D. student at West Virginia University studying International Relations and Comparative Politics.