‘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).
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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.