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On February 22nd, Florentine mayor and Democratic Party (DP) leader Matteo Renzi became the youngest Italian prime minister. Renzi, who is thirty-nine years old, has promised a series of reforms to shake up Italy’s dysfunctional political and economic culture. While never holding office on a national scale, Renzi believes that he can use his first 100 days in office to get Italy moving again and restore it to its proper place as one of the major powers on the European continent. However, old political and economic habits die hard and political observers, which include some of those in Renzi’s own party, feel that he is all flash and no substance. Considering the fact that Italy is the third largest economy in the eurozone and that its economy has not fared well over the last two decades, Renzi comes at a crucial time in Italian history. A successful administration could put Italy back on the road to economic growth and a more stable political system, but a failure could dishearten the Italian population and lead to populist leaders taking power from either the political left or the right.
This topic brief will summarize Italy’s political and economic problems, discuss the reforms that Renzi has proposed, and evaluate whether he will succeed in reforming Italy.
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Italy’s Political System
Extempers that are somewhat familiar with Italy know that its parliamentary governments are prone to instability. In fact, since 1945 Italy has had more than sixty cabinets and the last three Italian prime ministers have not been elected by voters. The Italian government has a president, who serves a seven year term and is elected by the Italian parliament and three representatives from each Italian region. The president serves as the head of state, but has limited powers relative to the prime minister. The Italian president has pardon power, can ratify treaties after Parliament has approved of them, and has the power to dissolve one of the two houses of Parliament as long as this does not happen during the last six months of his term or the sitting Parliament’s term.
Italy has two chambers in Parliament and what plagues Italian politics is that both chambers have equal powers, which is sort of akin to the U.S. Congress. The lower house of the Italian parliament is called the Chamber of Deputies (or House of Deputies) and has 630 members. The upper house is called the Senate of the Republic and has 315 elected members and a few members that serve life terms, which include former Italian presidents and five individuals the President appoints for significant social contributions. Each body must approve of legislation for it to become law, just like the U.S. House and Senate, and each body has to give the incoming prime minister a vote of confidence for them to take power. Each body also has the power to call a confidence measure on the government, which if it fails to win in either chamber, can be forced to resign.
Members of the Chamber of Deputies are elected through a proportional representation system determined by party lists. What this means is that voters cast ballots for the party and the number of votes a party receives determines the seats that it will be able to obtain in Parliament. However, this is an indirect election system because party leaders decide the order of candidates on the list, with candidates higher on the list obtaining office before candidates that are ranked lower. A party has to obtain 4% of the total vote to get seats in parliament, unless they pledge their support for another party as part of a coalition, in which case they only need to obtain 2% of the vote as long as the coalition that they are part of received 10% of the vote. According to Italian election law, the coalition that wins the most votes at election time is guaranteed 55% of the seats in the Chamber of Deputies There are three major coalitions in the Chamber of Deputies at the Moment: Italy Common Good (IBC), which is a centre-left coalition of which the Democratic Party (PD) is the strongest party. It holds 293 seats. The centre-right coalition of Silvio Berlusconi, the former prime minister who was kicked out of parliament after being convicted of tax fraud, occupies 1117 seats. The populist Five Star Movement of activist and comedian Beppe Grillo, which is a movement that stands for libertarian principles, has 106 seats. It is called the Five Star Movement because it advocates for five major issues (as its Wikipedia page attests): public water, sustainable transportation, economic development, Internet connectivity, and environmentalism. The sitting prime minister often comes from the party that has a majority in the Chamber of Deputies.
The Italian Senate is elected from the twenty regions of Italy and six senators represent Italian communities that live abroad. The election rules with party lists operate the same for the Senate, although there are different thresholds for representation. Whereas the Chamber of Deputies has members elected from districts, Senate representation is regional. A coalition must win 20% of the votes to be represented in the chamber and a party must receive 3% of the vote within that coalition to be eligible for representation. If a party is not a member of a coalition it must receive 8% of the vote. A party that wins a regional Senate election receives 55% of the seats from that region. Since this 55% award happens by region and not based on the entire national vote, like the Chamber of Deputies, it is possible that the governing party will have a slender majority in the Senate relative to the Chamber of Deputies. The current composition of the Senate has Italy Common Good with 108 seats, the centre-right of Silvio Berlusconi with 107 seats, and the Five Star Movement with 50 seats.
Political and Economic Dysfunction
Italy’s political dysfunction owes a lot to intraparty politics and feuding. It also owes to the different election-based systems and equal powers of the Chamber of Deputies and the Senate. Since the Senate is given equal power with the Chamber of Deputies, which is unusual in European politics, it can frustrate the efforts of a government to pass legislation if some members of its coalition defect to another side. This can produce a crisis and bring down the existing government. Although political parties have to pledge their allegiance to each other if they are part of a coalition before elections are held, these pledges can easily be broken. It is common practice in Italian politics for parties to divorce themselves from the coalition that they were elected with and The Economist on January 25th points out that within the last year three new parliamentary groups have been created as parties have broken away from their previous alliances. If a sitting prime minister experiences significant defections from his or her party in the Chamber of Deputies or the Senate it could eliminate their majority, lead to a confidence vote, and lead to early elections. This helps explain why Italy has had significant political turnover throughout its history.
Another cause of Italy’s political dysfunction exists within the upper ranks of the Democratic Party (PD). The PD is led by Matteo Renzi, the mayor of Florence. Renzi has made it a habit to attack the older Italian political establishment, which is seen as blocking the rise of younger Italians into the ranks of power. Younger Italians blame the older establishment for Italy’s political, social, and economic problems and Renzi capitalized on this to win the leadership of the PD late last year. This created some tensions within the PD because Enrico Letta represented the party as its leader in the Parliament and was the sitting prime minister. Renzi promised that he would not try to force Letta’s ouster through a confidence vote despite the fact that he publicly criticized Letta for moving too slowly on needed political and economic reforms. However, he broke this pledge last month and Letta, who was facing declining support within the PD and its coalition partners, resigned. The PD then backed Renzi as the new prime minister. This type of political backbiting helps explain why the last three Italian prime ministers: Mario Monti, a prime minister named in 2011 in the midst of the European financial crisis that affected Italy, Letta, and now Renzi have not been elected by Italian voters (Monti was appointed to lead a unity government after Berlusconi stepped down in 2011, Letta was not the PD leader when it won the 2013 Italian elections, and Renzi was not in the PD leadership at the time as well). Renzi vowed that he would only take power after winning an election, but now he is saying that he hopes to see out the term of the existing government until 2018.
The UK Telegraph on February 26th adds that Italian politics suffers from too many interest groups that see little need to compromise with each other. Unions, small businesses, large businesses, bureaucrats, the Catholic Church, the national judiciary, and local and regional authorities are all very protective of their power and refuse to cooperate to solve national problems. Italy also has organized crime outlets operating in Southern Italy, which have been tolerated under previous governments despite the fact that they corrupt politics, channel economic growth away from official channels, and drive up the costs of doing business in the country. There is also a lack of consensus on what reforms need to be taken to improve the country. For Italian nationalists, the European Union is to blame for Italy’s problems. Other right-wing leaders like Silvio Berlsuconi made a career out of blasting the size of the Italian government and saw it as a significant problem. Italian leftists are very protective of the Italian safety net and do not want to jeopardize the lifetime contracts of existing workers or loosen labor regulations. A general reluctance to look at the problems the nation is facing and engage in the horse trading necessary in a democratic political system has produced a deadlock that previous Italian leaders have found difficult to break.
A bigger issue that Italy faces is its economy is underperforming. The BBC on February 24th notes that Italy is the third largest economy in the eurozone, but has fared poorly since the euro was introduced fifteen years ago. Whereas France and Germany grew 15% during that time, Spain 18%, and Ireland more than 30%, Italy’s growth during that period barely comes above 0%. In fact, the International Monetary Fund reports that Italy’s economy is smaller than it was in 2000. The BBC goes onto explain that Italy’s GDP per capita, which is a great tool for measuring living standards, fell 7% between 2000-2013 and that its unemployment rate is 12.7%, which is above the eurozone average, and The Christian Science Monitor on February 25th points out that Italy has not seen these unemployment levels since the 1970s. The 12.7% unemployment figure is really bad, but it’s even worse when one finds that only 55.6% of working-age Italians have jobs. Much of this is due to the inflexibility of the Italian labor market, where employers find it very hard to fire people after they have been hired. This is a similar problem that plagues the French economy. Since businesses have a very difficult time firing workers, they opt to place the workers that they do have on short-term, temporary contracts or they simply choose to go without needed workers because if business gets bad they cannot fire them and could put their business in jeopardy. The Guardian on February 24th reveals that economic problems have really harmed young people in Italy, who have suffered the most from the global financial crisis. Unemployment for those Italians under 40 years old has risen from 8% in 2008 to 17% today, whereas those who are over 40 have an unemployment rate of 5%. Older Italians also enjoy lifetime job security due to labor rules enacted following the Second World War, so there is a two-tier labor market in Italy between those who are older and enjoy permanent job security and those who are younger, find it hard to get work, and if they do find work it is only temporary. The Guardian on Febuary 22nd explains that some young people are seriously contemplating emigrating from Italy, which could produce another great migration that rivaled previous Italian migrations at the end of the nineteenth century.
Since Italy has few opportunities for young people it is wasting its human capital resources. The Guardian of February 24th explains that 25% of Europe’s six millions young people that are not studying or currently working live in Italy. The Guardian of February 25th adds that Italy has a very poor business climate that is unwelcoming to women or refuses to hire women. Italy has never had a female prime minister and most major Italian companies lack sizable numbers of women on their executive boards. Women are underemployed in the Italian economy as well, which is partly due to high childcare costs and this means that women have a lifetime earnings potential that is half of a male counterpart. By only utilizing half of its economic resources and not providing enough economic outlets for young people, Italy has paved a road to financial disaster and stagnant economic growth and it has followed this road for the better part of two decades.
The Italian government also carries the largest debt burden in the world at 133% of GDP, according to the Brookings Institution on February 20th, and it needs to find a way to bolster its paltry economic growth figures. For example, in the third quarter of last year the Italian economy grew by a measly 0.1%. The lack of economic growth creates financial problems for the Italian government because the fewer people working means that there are fewer taxpayers, which limits the revenue stream for the central government. The Brookings Institution goes on to explain that Italy is in desperate need of tax and regulatory reform because the country ranks 65th in the world in terms of favorable business climate, which is below some of its major European competitors. The Guardian cited above notes that 372,000 firms closed in Italy last year, so the effects of the global financial crisis and the European debt crisis are still being felt. Prior to joining the eurozone, Italy had a tendency to devalue its currency to reduce its deficits and promote exports, but it can no longer due that since the European Central Bank sets the monetary police for those that use the currency. While some populist forces want to withdraw from the eurozone, going back to the lira would likely devastate the Italian economy for years, so that is not a feasible option for Italy to take.
Renzi’s Reforms
Renzi, the youngest Italian prime minister in history (prior to him Benito Mussolini was the youngest), has wasted little time advocating for the changes that he feels are necessary to get Italy back on the proper course. The Economist on March 1st reports that Renzi has promised one reform a month until June. He has his sights set on reforms of the country’s employment law, bureaucracy, and tax policy. He also seeks to reform Italy’s electoral law to make the nation easier to govern and eliminate smaller parties that can dissolve a coalition if they choose to defect or establish new alliances in parliament. Another reform that Renzi has his sights set on is reducing the power of the Italian Senate.
The area where Renzi may have the most success is reforming Italy’s electoral law. The Economist of January 25th outlines this reform. Candidates would still run for office on party lists, with those candidates ranked highest on the list having the best chance of gaining a seat and men and women would alternate priority on these lists. The benchmarks for getting into Parliament would change to 12% for a coalition to be eligible for representation, to 8% for a party that is running by itself, and 5% for a party running with a coalition to receive representation. If a party won 35% of the vote it would be able to receive bonus seats in Parliament that would enable it to receive a clear parliamentary majority and if it failed to get 35% of the vote a runoff election would be held to determine a clear winner. However, this reform does not allow Italians to vote for their representatives directly, as party lists are still being drawn up, and it does not necessarily mean that future coalitions would be stable agreements. The electoral law is likely to pass because Silvio Berlusconi has thrown his support behind it.
Berlusconi has also agreed to help Renzi pass a constitutional reform reducing the power of the Senate. Renzi would like to the Senate to become a weaker chamber relative to the Chamber of Deputies, which would give the lower house of parliament enhanced powers and stabilize governments by helping to avoid confidence motions in the Senate. The constitutional reform would shift some policy issues from regions involving transportation and energy to the national government and would make the Italian Senate like the German Bundesrat, whose members are chosen from state governments and not by voters. The German Bundesrat has limited powers over taxation and administrative issues and issues that affect the German states directly, so if the Italian Senate changed into this type of body they would have their powers significantly reduced. This change would help Italian governments survive longer terms, but could still create an impediment to some economic reforms in the future if those reforms touch the Italian regions.
Renzi wants to enact some tax reform in the country in an effect to attract private investment and increase consumer spending. According to Reuters on February 25th Italians fork over 48% of their income to the government in the form of taxes and social security payments, which is the sixth highest among Organization of Economic Cooperation and Development (OECD) countries. The UK Independent on February 25th writes that Confindustria, a pro-business lobbying group, has supported this reform measure. Renzi is targeting a double-digit reduction in employment and social security taxes (around €10b), while at the same time raising taxes on the earnings from financial investments. Italians endure one of the highest tax burdens among eurozone members, so this would be a good step in making Italy more business-friendly.
On employment, Renzi wants to push what he calls the Jobs Act to increase the employment of Italians, especially young working people. Foreign Policy on February 24th writes that would make it easier for businesses to hire and fire younger workers. The goal is to give businesses enough flexibility to where they are willing to take on workers when times are good, but can also shed them when the economy declines. Renzi hopes that his reform will create more private sector jobs in research and innovation, which are the jobs that Italy needs to attract and create to be a successful economy in the twenty-first century.
Renzi’s new cabinet shows that he is interested in breaking some of the gender barriers in Italian politics and society. His 16-member cabinet (extempers that wish to know about some of the top figures in Renzi’s cabinet should read this factbox article from Reuters on February 21st), which is one of the smallest in Italian history, has eight men and eight women and The Huffington Post notes on February 25th that the posts women occupy are very important: foreign affairs, defense, economic development, health, education, institutional reform, public administration, and regional affairs. Since Renzi has taken power at a time when the Italian government will name new CEOs and board of directors to national companies, he will have the opportunity to increase the representation of women in the private sector. The Guardian previously cited from February 24th explains that 94% of the board members in Italian companies are men and 80% of them are older than 55. Renzi will have the opportunity to appoint people to 600 positions on companies that are owned by the Italian Treasury like Eni, an Italian oil and gas firm and Enel, an Italian electric company. Gender advocates argue that if Renzi dithers in choosing women to occupy a larger proportion of these companies that he will fail in one of his first tests to reform Italy.
Will He Succeed?
To say that Renzi’s hands are full in trying to accomplish these reforms is an understatement. He will face intense opposition from some interest groups in pushing the legislation and extempers should be aware of these problems if they are going to give a speech prematurely glorifying Renzi. Renzi’s attempt to reform the Senate will run into problems because the Senate will have to vote for its own demise. Since the Italian political system allows both chambers in the national legislature to have equal powers, the Senate must clear all of Renzi’s reforms. Although the PD’s coalition has a sizable number of Senate seats, it is not clear whether the Senate will follow his proposal. The Senate recently gave Renzi a vote of confidence, but the BBC on February 24th explains that it was more narrow than the one given to his predecessor Enrico Letta. Also, elements of the PD coalition may not want to follow Renzi’s reformist path. His coalition includes ex-communists that are skeptical of pursuing significant labor reform and that have traditionally favored more state interference in the national economy instead of less. The PD works with the New Centre-Right (NCD) party of Angelina Alfano and it may stifle reform proposals. The NCD used to be allied with Mr. Berlusconi, but broke with him last year and The Los Angeles Times of February 22nd points out that the PD needs the NCD for crucial Senate votes, where its margin over opposition parties is much smaller than the Chamber of Deputies. The Economist on January 11th writes that Renzi wants to impose a grand coalition agreement on the NCD like one that Angela Merkel worked out with the Socialist Party in Germany after elections last year. This would prevent the NCD from defecting from the PD-led coalition for 12-15 months. The Economist on February 22nd reports that the NCD opposes Renzi’s reform plans on property taxation and granting legal rights to unmarried partners, since the NCD is a very socially conservative party. It is also skeptical of his electoral changes because they could work against small parties like the NCD, which is polling less than 5% right now. Elements of the NCD think Renzi’s goal is to create a two-party state in Italy, devoid of smaller parties, and that this would rob them from influencing national policy. However, extempers should also consider that the NCD risks its own life by threatening to bring down Renzi’s government by withdrawing from a coalition or stifling his reforms. Since it is polling less than 5% right now, it is dangerously close to not meeting the threshold for representation in the Chamber of Deputies if it chose to go it alone. It is possible that the NCD to realign itself with the Italian right-wing and Berlusconi’s factions, but it is also not a guarantee that those factions would take them back after the NCD abandoned them last year. So, as you can tell, Renzi is going to have to play a shrewd political game to get his reform proposals through the Senate and get enough votes from the PD’s new and traditional allies.
Another problem that emerges about Renzi’s reforms is how he is going to pay for them. Italian critics and the international media have blasted some of Renzi’s ideas as unaffordable and that he has yet to explain to Italians and the European Union (EU) how Italy can implement them. For example, Renzi’s tax cut plan, in conjunction with a school-building project and paying Italy’s debts to private companies would cost the Italian government more than €100b, according to The Economist on March 1st. These costs also grow if Renzi succeeds in getting another reform proposal through which would extend unemployment benefits from eight months to two years and provide financial support from the government to small businesses. If Italy’s debt situation was better this may not be as much of an issue, but the Brookings Institution article previously cited explains that Italy will have to convince the European Union (EU) to allow it to breach the EU’s 3% deficit ceiling on eurozone members in order to enact financial reforms. United Press International on February 27th reports that Renzi achieved part of his popularity by attacking EU austerity measures that former Prime Minister Mario Monti and financial bureaucrats have enacted in Italy to keep it in the eurozone. The measures are unpopular in Italy. Now that Renzi has to govern, he has retreated from bashing the EU and recently argued that Italy cannot turn its back on the EU since it was one of the organization’s founding members. Still, the EU may not like some of Renzi’s financial reforms that will contradict existing austerity measures, which call for Italy to balance its budget and reduce government expenditures, and jeopardize some of their implementation. There is also the risk that Renzi could dig Italy into an even bigger hole financially with little in the way of an economic payoff to show to voters.
There is also the question of how long Renzi’s popularity will last. When Silvio Berlusconi was first elected in 1994 he had as much experience governing on the national level as Renzi (which means none) and although Berlusconi promised reforms he failed to deliver. Al-Jazeera on February 22nd postulates that Renzi is trying to do the impossible in convincing Italian voters that they need to enact significant, and in some cases very difficult and painful, reforms without having received an electoral mandate. While it is true that Renzi won a vote of confidence from both houses of the Italian legislature, he has yet to face the people of Italy on his own. The lack of an electoral mandate should be discussed by extempers in a speech with Renzi because when the going gets tough on his reforms, and that time will come at some point, is he going to be able to call upon the Italian people to back him? Without a victory in a general parliamentary election, it is going to be hard for Renzi to win over undecided legislators that view him as a flash in the pan phenomenon and as someone who is all show and no substance. Currently, Italy’s polls show a deadlocked election, so Renzi has an opportunity to use the constitutional reforms he has agreed to with Berlusconi to present himself as a man who can get things done. Still, extempers should expect a general election within the next two years in Italy (possibly after Italy completes its six-month rotating presidency of the EU in the second half of 2014) because it is likely that one of the reforms that Renzi pursues will spark a backlash among established political figures and that election will either endorse Renzi’s reforms or knock him out of the prime minister role.