Italy on a knife edge as Renzi takes control

Just when Italy’s political paralysis produces more angst about its prospects glimmers of economic light have emerged

People take part in a rally calling for lower taxes and better protection for small enterprises in downtown Rome

People take part in a rally calling for lower taxes and better protection for small enterprises in downtown Rome

Fri, Feb 21, 2014, 01:10

For how long will the “C” factor work for Italian prime minister-in-waiting Matteo Renzi? The “C” in question stands for “culo” (arse) which colloquially means “luck”.

Ever since he won €24,000 as a 19-year-old on a TV quiz programme, called Wheel of Fortune , Renzi has been seen by some as a lucky person. Economic analysts would argue that he will need all the luck going if he is to steer Italy out of recession.

At first glance, all the economic indicators are worrying. Italy is struggling to emerge from its most prolonged recession since the second World War. The national debt is a staggering €2 trillion, or over 130 per cent of GDP. Unemployment stands at 12.7 per cent, more than twice as high as in pre-crisis 2007, whilst youth unemployment (15-25 age group) is at over 40 per cent.

From 2011 to 2012, foreign investment in Italy shrank by half, passing from €24 billion to €12 billion. The economic growth rate has been below zero for the last three years. According to national statistics agency, ISTAT, household spending power dropped 4.7 per cent last year, reaching the lowest level in more than 20 years.

In commercial terms, those figures translate into a total crisis for that huge sector of small and medium-sized businesses which, historically, have been the engine that has driven the Italian economy.

Rete Italia, which brings together five confederations of artisans, shopkeepers and small or medium-sized companies, recently reported that 372,000 businesses, or more than 1,000 per day, had closed in 2013.

Last Tuesday, at the very moment that Renzi was initiating his government “consultations” in parliament, just 300 metres down the road in Piazza Del Popolo some 60,000 members of Rete Italia had gathered to protest under the banner of “Without Commerce, There Is No Italy. Let Us Reclaim Our Future”.

These protesters were neither football hooligans nor the so-called “Pitch Forkers” who have been active in recent months but rather exasperated artisans, shopkeepers and small businessmen.

Many of them feel that the Italian state is driving them out of business because of its combination of infrastructural shortcomings, over-weaning bureaucracy and high labour costs, all set against punitive tax rates in a climate of worldwide recession.

This does not refer merely to corporate tax of about 27.5 per cent, but also to a series of different local and regional taxes applied to commercial enterprise.


‘Post-hope’ generation
One of those in Piazza del Popolo on Tuesday was Stefano Gilli who runs a Bologna-based, heavy engineering tools supply company. He told daily La Repubblica : “My father built up this company before the war… and then later he was interned by the Nazis … It makes me feel very sad to think that there, where neither the Nazis nor the Fascists succeeded, this lot are succeeding…”

So then, have we arrived at the “Post-Hope” generation? Is it even reasonable to expect a complete rookie, someone who has never stood in parliament let alone had experience of national government to be able to pull this set of irons out of the Italian fire?

Ironically, however, just when all seems lost, faint glimmers of light have emerged. For a start, there are clear signs that the Italian recession is over.

The economy expanded in the fourth quarter of 2013 by 0.1 per cent, whilst the outgoing government of Enrico Letta has predicted a 1.0 per cent growth rate for this year.

These are obviously miserable figures but they are at least positive, certainly positive enough to prompt Moody’s to last week boost Italy’s Baa2 debt rating outlook from “negative” to “stable”. That improved rating was issued just as the government crisis unfolded but, significantly, Italy has continued to perform well on the markets throughout these days of political turbulence.

This week, the infamous “spread” between Italian government bonds and triple-A rated German “bunds” sank to 196 points, its lowest level in three years. Remember, in the difficult days of the economic crisis which drove Silvio Berlusconi out of office in November 2011, the spread was close to 600 points.


Outlook
Gianluca Verzelli of Banca Akros says that maybe the timing of Renzi’s arrival in government office will be lucky.

He takes over not only at a moment when Italy seems to be coming out of recession but also at a moment when the perception that the euro and Eurolandia might go down the tubes seems to have greatly waned.

The markets are now awaiting Renzi’s first moves. Dietmar Hornung of Moody’s told the MNI agency this week that if his policies represent an “effective strengthening of growth prospects”, then Italy could well be upgraded.

For the time being, however, that is a very big “IF”.

For a start, when he accepted the government mandate last Monday, Renzi immediately outlined an ambitious programme of reforms which translated as: electoral reform in February; employment measures in March; public administration reform in April; tax reform in May.

That all sounds good but here we are nearly at the end of February and he has not yet formed his government let alone gone through two parliamentary votes of confidence.

He will be doing well to be installed at his prime ministerial desk before the end of this month whilst chances of enacting immediate electoral reform in a matter of days range from zero to less than zero.


Desperation and confusion
One worrying indication re the future of the Renzi government has inadvertently come from Fabrizio Barca, minister for territorial cohesion from 2011 to 2013 under Mario Monti.

A one-time candidate for the key post of finance minister under Renzi, Barca was caught out by a hoax radio phone call this week.

Believing that he was speaking to leftist leader, Nichi Vendola, and not to a nationwide radio station, he said that the Renzi camp is in a state of “desperation and confusion” as it works to put together the new government.

The whole project lacks “ideas”, he said, whilst “there is an element of pure adventure about it”.

As for Matteo Renzi, he has already said that, ironically, the current austerity crisis represents not only a huge problem “but also a great chance” for Italy. Many Italians will be hoping that the man who won on The Wheel of Fortune quiz programme can win again.