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Which Way Now For Italy?

Trying to understand just which way Italy is going to head now is not at all easy. In theory after the recent revelation that Italy’s economy has slipped into yet another recession – its third, incidentally, one might expect Italy’s premier Renzi to change tack.

Whether Renzi will remains to be seen though he will have to do something because his grand plans for Italy were based, at least in part, on funding based on GDP growth forecasts. Now it is clear that the GDP growth just isn’t there, Renzi will have to look elsewhere for the cash he needs. Maybe he’ll finally see sense and listen to Carlo Cottarelli. Then again, maybe he won’t.

Cottarelli and Cantone Cuts

Incidentally, Cottarelli has clubbed together with Italy’s anti-corruption commissioner Raffaele Cantone and the two believe Italy’s public sector could achieve savings of €4.5 billion a year simply by respecting the rules which govern public sector purchasing. While such savings would not solve Italy’s problems entirely, they could be used to help extend the Renzi government’s €80 a month tax reduction for a good few years. Giving an estimated 10 million Italians an extra €1000 a year to spend may boost consumer spending even if early indications are that the €80 handout has had little, if no, effect so far.

However, instead of listening to the likes of Cottarelli and Cantone, premier Renzi appears to be hoping (praying?) that Europe will allow already heavily indebted Italy to add to its debt. Without concrete savings, this is all Italy can do to attempt to point its flagging economy in a better direction.

Increasing Italy’s debt appears to be premier Renzi’s preferred course of action and he believes recent indications of a downturn in the Eurozone may help Italy achieve the ‘flexibility’ – read permission to increase its national debt – he is fishing for.

Up to now, though, the EU has been somewhat reluctant to grant Italy any flexibility and was not happy with the paperwork the Boot submitted to the EU in the hope of provoking it into giving the nation some slack debt-wise. While the EU door still remains closed to Renzi, the European Central Bank is still ajar. The two doors are adjacent to one another.

Renzi is probably hoping and praying that European Central Bank head Mario Draghi’s unconventional measures to help put the entire Eurozone back on track, will provide Italy with the cash, or at least the ability to continue extending its debt, as this Renzi him to do what he hopes (prays?) will jumpstart Italy’s stalled economy.

Draghi’s Strings

Draghi’s assistance, however, may come with a few attached strings. The message the ECB head has been sending out repeatedly is that while the ECB is committed to intervention intervene (Quantitive easing incoming?), in return, it will expect Italy and other nations to introduce reforms. Indeed, without reforms, and especially in Italy’s case, ECB intervention won’t be any where near as effective as Draghi would like it to be.

Renzi replied to Draghi’s statement on the necessity of reforms saying that while he agreed, nations which reform should be allowed flexibility. Further confirmation, as if any were really needed, that Renzi wants to be allowed to increase Italy’s already massive level of national debt.

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For reasons which are not entirely clear, premier Renzi does not appear to acknowledge, at least not in public, that Italy”s phenomenally high level of debt is within a hair’s breath of becoming unsustainable.

Is Renzi Forging Ahead with Reforms?

The answer is that Renzi is not pressing ahead with the reforms Italy desperately and urgently needs. Instead of working on the structural reforms Italy needs, Italy’s Prime Minister has decided to focus on slow and laborious process of institutional reforms and aside from semi-abolishing Italy’s senate, he’s about to tinker with Italy’s justice system. Renzi’s justice system reform attempts will be aided and abetted by a certain convict Silvio Berlusconi.

Heaven only knows what kind of reforms Renzi and Berlusconi will eventually cook up but with Berlusconi’s involvement, one can be around 99% certain the reforms won’t really reform anything. Indeed, the worry in Italy is that instead of reforming Italy’s already messy justice system, it will be deformed. We’ll see.

Renzi Needs Berlusconi

Unfortunately for Italy, Renzi needs Berlusconi’s support to push any and all reforms though Italy’s senate. Without Berlusconi’s assistance, Renzi won’t go anywhere unless he forms an alliance with Beppe Grillo’s 5 Star Movement and that is just not going to happen.

Berlusconi’s support, like Draghi’s ECB help, comes with strings attached. The strings Berlusconi and his cronies want to attach are highly unlikely to help point Italy in a better direction. Berlusconi wants to limit independence of Italy’s judiciary and to block the introduction of laws cracking down on false accounting and a form of money-laundering. In addition, Berlusconi wants ‘friendly’ electoral law reforms.

Up to now, his attempts to pilot justice system reforms have not got as far as Berlusconi would like though there is still time. One suspects the noises coming from the Berlusconi camp that it may drop its support for Renzi are to keep the pressure on to ensure it obtains the reforms it wants.

Renzi Spins Back to Work

After a reportedly €1000 a day summer break paid for by unknown parties and during which he took part in the the daft but highly fashionable ice bucket challenge (it’s for a good cause), Italy’s Prime Minister is back to work. While on vacation, in between bouts of tennis, and ice cold water, Renzi kept on spinning – but not in a local gym.

His latest and greatest spin is that he wants to remove control of Italy from the hands of the usual suspects and occupants of Italy’s ‘salotti buoni’ or ‘elegant sitting rooms’ – references to Italy’s political and entrepreneurial elites. What he’s failed to do so far suggest that his fine words are little more than pretty rhetoric, otherwise known as spin.

At this rate, Italy risks ending up going the same way as Venice. Once a major economic power, Venice is today little more than a pretty ice cream parlour.

Still, Italian ice cream is very good.

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