‘Out the old and in with the new’ was the battle cry of Italy’s unelected prime minister Matteo Renzi. However, letting go of Italy’s past has proven much harder than perhaps Mr Renzi expected.
The Partito Democratico Mr Renzi leads is beholden to Italian politics of the past. The defective baggage it carries is hindering Italy’s future and hobbling the nation’s premier.
Instead of adopting a creative approach to solving Italy’s many problems, premier Matteo Renzi has decided to attempt to spend Italy out of its hole and buy future votes. Italy’s government’s €35.4 billion 2016 budget will increase Italy’s deficit from 2.2 to 2.4% of GDP. The spending, though, may not do much good in the long term and may merely act as a form of stop-gap until Italy’s economy recovers, if, indeed, it ever does.
The Stop-Gap 2016 Matteo Renzi Giveaway Budget
Italy’s 2016 budget includes a raft of stop-gap handouts aimed, ostensibly, at those Matteo Renzi hopes will vote for him.
There’s the €500 handout for Italy’s 18s to spend on cultural activities. Then there’s the end of property tax on many first homes in Italy, except for those homes used to accommodate family offspring and luxury residences. This should acquire a few more votes for Mr Renzi, well, it worked for Silvio Berlusconi. Also included is an €80 bonus for Italy’s police, a payout partially in the name of increased security in the face the ISIS terrorism threat. To others though the handout looks suspiciously like a way of buying the votes of Italy’s police forces. Pensioners will also benefit from a cut in taxes thus earning a few votes for Mr Renzi from the older members of Italy’s population.
That Mr Renzi is pursuing an all-out vote buying campaign has not escaped notice. But why is Italy’s Prime Minister employing such a cheap, short termist, approach to politics? Simple. He cannot overcome the baggage of the past so he has no option but to try stop-gap measures in an attempt, he hopes, to keep the dreaded anti-rotten-Italian-establishment Five Star Movement out of power. Whether he will, remains to be seen. Opinion polls suggest he will not but there’s still a while to go until elections are held. Local elections are on the horizon in 2016 though which is another reason for the great Renzi giveaway.
Not helping matters for Italy’s Prime Minister Matteo Renzi is the much vaunted Jobs Act employment law reform. While this reform was supposed to have generated jobs, so far, it has had very little effect indeed.
The Bodged Matteo Renzi Bank Bailout
More recently, there’s been the bodged bank bailout which appeared to benefit certain friends of Italy’s governing political party – precisely what Italy’s political parties of old are renown for doing. The bailout may also have help prevent the loss of a large dollop of public money too.
While it may not be the case, it looked to many in Italy as if the Matteo Renzi multi-bank bailout, craftily engineered to get around EU regulations preventing the direct use of public money to save ailing banks, may have benefited the father, and brother, of Italy’s Reform Minister, Maria Elena Boschi.
Minister Boschi denies the salvage operation benefitted her family or her personally and survived a vote of no confidence. Suspicions remain though and the salvage which may well have saved more savers than it harmed, does appear to have damaged many thousands of smaller savers who, reportedly at the behest of their trusted bank, invested in highly risky subordinated debt bonds. This begs the questions: How many other Italian banks have tempted their account holders into similarly risky investments? And how many more of Italy’s smaller banks may also require an indirect helping hand from Italy’s government? Who knows?
Rather tellingly, Italy’s anti-corruption czar has been called in to investigate just why the Bank of Italy, and Italy’s markets watchdog, CONSOB, did not act sooner and thus prevent the need for the bailouts. And Italy’s 2016 budget also includes a fund to make up for some of the losses suffered by smaller savers as a result of the, er, salvage, operation.
Indirect Use of Public Money to Save Ailing Banks
Although the bailout will not use public money, it will lead to a fall in tax income for Italy because the “save the banks fund” is to be filled with cash other Italians banks won’t have to pay in taxes (link to explanatory article in Italian).
Not all the news is bleak though. Consumer confidence is, apparently, rising, as is consumer spending – if one believes official data. Speak to Italians on the street though – as this Italy watcher has been doing, and views on Italy’s economic recovery are mixed.
One Italian gentleman I spoke to commented that he thought Italians were becoming poorer, as did a business owner I know in Tuscany. A bar owner I talked to was not at all convinced the crisis is over. Larger businesses in Italy are, however, more confident that the situation is improving as the 0.8% GDP growth Italy might achieve by the end of 2015 suggests. Car maker Kia, for example, has had a record year in Italy. At least one of Italy’s bigger banks, Banca Intesa, will walk away from 2015 with a decent profit too.
Pessimism Gives Way to Cautious Optimism
The pessimism of the past appears to have been replaced, at least in part, by some optimism with regard to Italy’s economic future though it is by no means universal.
To do this, Italy premier Matteo Renzi is seeking a helping hand.
The Cameron Factor
To push Italy’s emerging optimism up a little further and to keep the skeletons of the past at bay, high spending prime minister Matteo Renzi, obviously a gambling man, intends to push Italy’s enormous national debt even higher. To be allowed to do this, Mr Renzi is fishing for ‘flexibility’ from the European Union.
To get what he wants, Matteo Renzi has cozied up to Britain’s Prime Minister Mr Cameron, who, as you might well know, appears to want Britain out of the European Union and is to hold a referendum to allow Britons to decide. If Mr Cameron does not force the European Union to reform, then he will probably object strenuously to its lack of flexibility and this might convince the British people to vote to leave the EU. Mr Renzi might follow suit as Euro-skeptics exist in Italy too and Italy loves to blame the EU for its own inadequacies, hence Italy’s prime minister’s friendship with his UK counterpart. Mr Renzi will need to be careful though.
Former Italian prime minster Silvio Berlusconi attempted to play the “Italy will leave the Euro card” but it didn’t get him too far; well, it probably precipitated his downfall. Despite what happened to Berlusconi, the leader of what is fast becoming Italy’s biggest right wing party, the Northern League, also wants Italy out of the Euro. On top of this, the upstart Five Star Movement is yet another party that is not too keen on Italy’s membership of the Euro area.
The anti-Euro card may well be a vote winner in Italy. Mr Renzi knows this and he needs votes if he is ever going to win elections. Then again, what Mr Renzi really wants is for Brussels to treat Italy more gently.
Italy’s 2016 budget amounts to a cool 35 billion Euros worth of spending. If the European Union raises its eyebrows at Italy’s budget, Matteo Renzi might accuse it of bullying Italy – something he has already been doing. This will stir up some more anti-European feeling which in turn may lead to an Itexit from the Euro referendum – depending, of course, on the outcome of the United Kingdom referendum – the date of which is still unknown, incidentally.
In attempting to steal a dose of anti-Europe thunder, Mr Renzi will merely be resurrecting something one of his not so well-regarded predecessors proposed. Back to the past, yet again.
In part, the 2016 budget giveaway is to save Mr Renzi’s face. While he hopes it may generate longer term vote gains, he will also have an eye on the elections of mayors in a number of Italy’s major cities. Milan, Turin, Naples and Rome will all choose new mayors in 2016 and if Mr Renzi’s party’s showing is poor, his leadership of the Partito Democratico may be challenged. With luck, the budget measures may gain his party a few more votes. Then again, his vote buying tactics of old may not.
Readers of Italy’s Fatto Quotidiano daily will also be well aware that Mr Renzi’s scrapping of the old ended almost as soon as it began. More shadows of Italy’s unhealthy past are being cast by corruption scandals that, despite the appointment of an anti-corruption mastermind, still appear to be a virtually daily occurrence.
No Visible Break from the Past
Because Italy’s Matteo Renzi cannot make a break with the past, his government’s legislation stinks of the tinkering Italian governments have long been famous for. Inevitably, support for a new approach to politics as proposed by the Five Star Movement is growing. If only Mr Renzi could shake of the burdens of the past. Doesn’t look as if he is able to, though, and one is not entirely convinced he really wants to anyway.
What giveaways will 2016 hold for Italy? We’ll see.
Stephen says
Here is the question I ask myself – is Italy’s glass half full or half empty?
Consider spending. Italy’s budget may have risen from 2.2% to 2.4% of GDP. Putting to one side for a moment the added cost of migrants and refugees that Europe acknowledges, we may be seeing Italy’s response to German imposed austerity.
Arguably austerity has not worked, certainly in southern Europe. Like the Euro itself, austerity has highlighted the two Europes that make up the EU and the reality that one size does not necessarily fit all.
Encouraging consumption and supporting public works may prove to be a better solution for Italy than the continued squeeze. If that leads to an argument with Brussels it may be for the better.
Consider the banks. Renzi, unlike Berlusconi does not have vast private interests, if any at all. If he has rich or powerful friends it is because they have been attracted to his capacity to offer reform and a future; otherwise they would not be his friends.
Any banking ‘bailout’ will inevitably result in some winners and some losers but the critical outcome must always be the stability of the banking system and the public’s confidence in it. If that is what Renzi achieves he will surely have done Italy a service.
Consider Cameron. It has long been said that a bad law cannot be enforced. So it is with an institution like the EU. If a majority of citizens don’t agree with it then continued compliance is difficult.
The EU has expanded greatly and become increasingly governed by non-democratic, unelected bodies that proliferate in and from Brussels. Talk of reform is always appropriate if, lemming like, member states are not to go over the cliff of complete loss of sovereignty.
Election results across Europe show a distinct shift to the right, often the extreme right. Arguably this signals frustration with, if not a rejection of, long standing centrist domination.
Renzi said this week in distancing Italy from Germany and Brussels, ‘Europe has to serve all 28 countries, not just one.’
Britain is entitled to argue for reform just as it is entitled to vote for or against Brexit. It is a matter for the British.
The German led insistence on austerity and the recent response to the migration crisis have, in particular, caused a number of member states to question Europe’s policy directions. If what happens in Britain or Italy or elsewhere results in less centralised control and an increase in the capacity of individual nations to control their own affairs is that necessarily a bad thing?
In a vibrant EU it must be up to each nation to consider, debate and decide these questions free of threats from the centre, otherwise they are not individual sovereign states.
Consider some objective measures.
Employment is up. There are 1.1% more people in jobs than a year ago, many in the South. Unemployment is down to 11.7%. It was 13% a year ago. Is the Jobs Act responsible? It is hard to argue it has hindered job creation.
Industrial production and exports are up. Production is up between 2% and 3% on a year ago and exports are up strongly. GDP growth, if weak, is still positive with an increase of close to 1% forecast for the year.
Confidence. Italy’s consumer confidence index has hit an all time high since records were begun. Business confidence is mixed across sectors but remains steady on 2014.
Opinion polls. Polls have had Renzi’s PD consistently ahead of 5 Star but when asked how they would vote in a run off (if no party received 40% support) a majority say they would support 5 Star. Observers are not concerned about this threat to Renzi as elections will not be held until 2017 or even 2018. Polling this far out, they say, is not particularly reliable.
What will tip the glass one way or the other?
Renzi’s reform program is, at least, encouraging. It stands in contrast with what his predecessors failed, or did not attempt, to achieve. He has certainly had to confront the blockages and obstacles of the past in promoting reform. These have often been substantial but he has chalked up encouraging progress.
Reform of the Constitution, particularly of the Senate composition and of lower house elections has been largely achieved. There has been necessary compromise but passage is one vote in each chamber away.
A modified Jobs Act is in operation and the beginnings of a less constrained employment market are showing positive signs. Further reform may follow a return to government following elections.
Education reforms giving greater autonomy to schools are in place enabling local responses to local needs.
Renzi has proposals for reform of the entrenched bureaucratic and judicial establishments that remain a crippling legacy of the past and must be broken if Italy is to succeed. Similarly, the monopoly status of notaios, pharmacies and taxis will be opened up for review.
It is early days for Renzi and judgement must be reserved for a future time. Progress to date should be seen in the light of the Constitutional, legislative and bureaucratic obstacles that he confronts. That is not to mention cultural preferences that have become ingrained over decades or longer; a resistance to paying taxes, cosseted employment and the like.
If Italians are prepared to resist the temptation to gulp greedily, it is likely the glass will slowly be refilled.
Alex Roe says
Hi Stephen and a belated Happy New Year to you too.
Re what is happening in Italy and Mr Renzi, it very hard to know whether his reforms are making a difference or whether, as some suspect, low oil prices are the main reason why Italy’s economy is showing some signs of recovery.
On the public spending front, in part, I agree that it might help – but only if the spending is part of a strategic long term plan. In other words, the spending today must generate benefits in the longer term. Has Renzi been highlighting the long term benefits? I don’t think so. His public spending initiative stinks of old Italian politics and of spending for spendings sake (evidence of gulping greedily) which, of course, is how Italy got itself into such trouble in the first place.
Another problem is that Renzi is not really trying to bring down taxes which, I feel, would be something that would jump start Italy’s economy. Increased public spending has to be funded where as cutting public spending – something which is not really being done – would enable Italy to both spend a little more and cut taxes – intelligently. Moreover, Italy needs to totally overhaul its tax system – something is on the cards but still seems to be in the distance. And Renzi appears to be virtually unaware that Italy is a nation of tiny businesses. By nurturing tiny businesses, some may well grow into bigger businesses which, of course, will employ more people – hey presto – economy grows again.
The news on the export front is OK, but Italy is still miles of where it could and should be – the market for Italian good is global. This is an area Renzi needs to focus on and this just does not seem to be the case.
As for the education system ‘reform’, I went to a presentation of these ‘reforms’ at my son’s school and came away feeling that the ‘reforms’ simply weren’t. Time will tell, of course but Italy’s education system needs more.
The overall problem with Mr Renzi in my opinion is that he does not seem to be very good at thinking strategically and planning for Italy’s future which is what Italy needs. Renzi is very good on the what front but not at all good on the why front and this could bring about his downfall. We’ll see.
If Italy does end up in the hands of the 5 Star Movement, it could be just the thing Italy needs to change direction and dump its not altogether productive political past. Fear of the 5 Star Movement could cause Renzi to steer Italy more effectively but the weight of the past may prevent him from doing what needs to be done, if, that is, he really wants to and I’m not 100% convinced he does – nor are many others.
Cheers,
Alex