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Italy’s youngest-ever prime minister


From Mayor of Florence to Italy’s new Prime Minister: At just 39 years of age, Matteo Renzi became Italy’s youngest-ever prime minister in late February.

From Mayor of Florence to Italy’s new Prime Minister: At just 39 years of age, Matteo Renzi became Italy’s youngest-ever prime minister in late February.

Following his December victory for the leadership of the Italian Democratic Party, Renzi quickly became frustrated with the government’s prolonged stalemate. In mid-February, having lost patience, he called a meeting of the Parliamentary Party, during which he briefly thanked Letta for his leadership but also called for his resignation.He had always maintained he wanted to become prime minister after a popular vote. On the other hand, he understood that a bad result at European elections would have undermined his leadership. If he had to pay this (electoral) price, better to be in the front line. Over the course of his relatively short political career, Renzi earned the nickname of “il Rottomatore”, meaning “the demolition man”, thanks to his reputation for taking on the establishment and pushing through political reforms. The Financial Times has dubbed him “a young man in a hurry,” but a number of commentators have questioned whether his lack of experience at the national level could undermine his ability to modernize Italian politics and kick-start economic growth. Others, however, suggest his very willingness to shake things up is what Italy needs and that this willingness to push for reforms will be precisely the source of his success.

INSTITUTIONAL REFORMS

Renzi’s institutional reform agenda: Renzi firmly believes that Italy is a country that has succeeded over the previous decades in spite of its politicians, not because of them. Renzi has committed to implement some institutional reforms. Italian politics are, of course, famous for instability and gridlock. Since 1945, Italian governments have, on average, lasted just more than 18 months, and Renzi is Italy’s fourth prime minister in just more than three years. This instability is in part due to the caprices of how the Italian Parliament is elected – the system favors support of small minority parties and, as a consequence, requires complex coalitions; but it is also in part due to the recalcitrance of the Senate, which has often sought to block reform. Renzi will seek to reform both: through the abolition of the Senate and the reform of the electoral law.

ECONOMIC REFORMS

Renzi’s economic reform agenda and challenges: Renzi has begun laying out the new government’s economic policy agenda, intended to kick-start Italy’s recovery. European Parliament elections in late May will be regarded as an assessment of his first hundred days in office (for more info on European Parliament elections’ analysis and scenarios, please see speaking notes “Ahead of the 2014 European Parliament elections”). He is therefore under pressure to prove he can lead to a change of pace compared to the previous government in the lead-up to the vote. Progress on economic reforms will be incremental although technical challenges, mainly related to the government’s persisting fiscal constraints, may make it difficult for the new administration to implement the proposed measures in full. The spending review, thanks to which some of the proposed tax cuts will be financed, for instance, is not merely a technical exercise but it will require contentious political decisions, such as a public sector hiring freeze, cuts to military spending, and a major re-structuring of procurement mechanisms.In parallel, political constraints, stemming from the diverse composition of the ruling coalition and from deep divisions within Renzi’s own Democratic Party, will limit the scope of structural reforms the new government will be willing and able to enact.

Economic agenda measures: On April 8th the Italian government approved the government’s annual economic and financial review (DEF), which is composed of two main sections: 1. the stability program, which deals with the macroeconomic and fiscal projections for the years 2014 to 2018, and 2. the national program of reform (PNR), which is an update of the structural reforms and growth measures already approved and in the pipeline. The main tax measures will be – a € 10 bn cut in income taxes for lower wage earners, and a cut in a regional corporation tax.  Renzi said the government would fund the tax cuts in 2014, which would give low-income workers an extra €80 a month from May, by cutting public spending by €4.5bn, raising €2.2bn through higher VAT revenues (that are expected to come from payments of government arrears to the private sector) and increasing the tax rate on income for Italian banks derived through a recent revaluation of their shareholdings in the Bank of Italy. The least expected new measure in fact is an increase in the tax banks have to pay for their revaluation of their share in the Bank of Italy.

In more detail, the structural reforms and growth measures contained in the government’s annual economic and financial review (DEF) include:

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