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Italy's Reformist Prime Minister Is the Type of Leader Europe Needs

ICE Graveyard 12/04/2016 Global Risk Insights

At a time when the European project is at a standstill due to successive crises that have triggered nationalist pushes throughout the European Union, political ideologues and forecasters struggle to predict what awaits, or give a clear path that would enable Europeans to feel inclined to take the experiment further.
One element they seem to agree upon, though, is the necessity for influential member states to be led by powerful, respected and visionary leaders. So far, Chancellor Angela Merkel in Germany seems to be the only leader ticking all the boxes -- although even she is facing growing opposition on her latest landmark policy to solve the refugee crisis. But another leader has been building a reputation in a country that has been topping the list of risks in Europe for the past decade: Matteo Renzi, prime minister of Italy.
A young reformist, ambitious and incorruptible; such are the attributes Renzi has been promoting in order to keep topping opinion polls in Italy, since he became prime minister in February 2014. More than just succeeding in bursting long untouched policies at home, Renzi has gained a European stature, although his dissenting comments are not always welcomed in Berlin.
After Italy's decades of political instability, Renzi's recognition as an impactful reformist and powerful politician deserves an explanation, and the issues awaiting him merit a careful look.
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Angela Merkel and Matteo Renzi address the media during a joint press conference in Berlin, Germany, Wednesday, July 1, 2015. (AP Photo/Michael Sohn)

Renzi the reformist


In February 2014, Renzi became the youngest prime minister in Italian history at just 39. This appointment was the consecration of a quick ascension, from president of the province of Florence in 2004, to mayor of Florence in 2009 and leader of the Democratic Party in 2013.
Inheriting power in a country with an economy in recession and where politicians had left Italy's stewardship to two successive interim technocrats since the financial crisis and Berlusconi's resignation in 2011, Renzi came into the job with a vision for his country, announcing a plan for "a reform a month."
The young politician hoped to rid Italy of the structural flaws that had made it one of the "sick men" of the EU; including political instability, a deadly bureaucracy, and excessively large public administration, corruption and the culture of cronyism, slow judiciary and legislative procedures and a staggering economy with worrying jobless figures.
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Matteo Renzi gestures while speaking during an election campaign for European elections in Rome on May 22, 2014. (REUTERS/Tony Gentile)

A flattering start


Although the promised pace of reforms appeared too ambitious, some of the measures were successively put in place. The Jobs Act -- a priority considering unemployment had reached a 13.1 percent spike and youth unemployment was at 43.6 percent -- successfully reformed Italy's labor code, introducing financial protection for young hires while giving employers the right to lay off any workers in cases of economic pressure.
With the reform, Renzi managed to reverse unemployment trends, with the most drastic drop seen for young workers (see charts below).
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Italy's unemployment rate and Italy's youth unemployment rate. (Trading Economics/National Institute of Statistics)

Since his appointment and attempt to restore confidence in Italian business circles, the country has emerged from recession with timid growth, while Rome kept introducing Brussels' fiscal medicine to reduce its public deficit -- a major threat to the Italian economy considering its high level of public debt.
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Italy government debt to GDP. (Trading Economics)

In order to keep boosting growth, Rome intends to both cut taxes for companies, and to support innovation -- with Renzi promising to build an Italian Silicon Valley.
Already successful in slightly redressing the economy, Renzi's other priority has been to reform the political system. Rome has seen more than 60 governments since 1945, and the only leader who managed to complete his full 5-year-term is Silvio Berlusconi. The electoral bill, adopted in May 2015, will concentrate more power in the hands of future Italian governments by making it easier for a party to win a majority in the lower house -- through a winner-takes-all system.

Agenda vs. politics


The complementary Constitutional Law should add the second layer to this political reform, reducing the legislative powers of the higher chamber -- the Senate -- and strengthening the central government at the expense of the regions in certain strategic sectors, such as energy and transport. The passing of this bill will be one of Matteo Renzi's major challenges in 2016, since Italians will decide on it in a referendum in October.
The rest of his reform agenda (including a tax overhaul and an administrative reform) will depend on this crucial vote, along with mayoral elections in the spring that will give an indication of the government's popularity. But so far, Renzi has managed to maintain a wide margin in opinion polls over his political opponents, including the populist and anti-EU 5 Star Movement and Northern League.
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Opinion poll April 1st, 2016: Democratic Party (Orange), Centre-Right Coalition (Blue), 5 Star Movement (Yelow), Northern League (Green). (Ixé)

Since assuming power, Renzi has shown a strong ability at political maneuvering, for instance when securing a deal with Berlusconi until his electoral law passed Parliament, only to betray him and support another candidate than Berlusconi's for president -- a mostly honorary position.
He is also constantly antagonizing populists and attempting to destroy their credibility in the public debate, and has succeeded in tempering the growth of a rebellion within his own ranks that would have paralyzed his legislative efforts.

The EU conversation


One of Renzi's main objectives as leader of the third-largest eurozone economy -- and founding father of the EU -- has been to bring Italy back into top tables at the EU level, or what he likes to call the "EU conversation." While his vision for the future of Europe isn't clear, he has consistently offered alternatives to Berlin's views, and hopes to become a leading voice in top debates.
Renzi has used opposition to Brussels -- and Berlin that according to him calls the shots -- both to mitigate an eurosceptic rise at home and to promote his country's interests, thereby showing himself as influential in EU affairs. Picking fights on major dossiers like the refugee crisis, sanctions on Russia, fiscal policy or Nord Stream II, an energy pipeline project, has not triggered a breakdown in Renzi relations with Merkel, who has a rather friendly relationship with the Florentine and sees him as the best potential partner in Italian politics.
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Migrants stand on a boat after being rescued in open international waters in the Mediterranean Sea between the Italian and the Libyan coasts on May 14, 2014. (REUTERS/Giorgio Perottino)

Challenges remain


Moreover, Renzi has so far been successful in his relations with Brussels, most strikingly with a deal to save Italian banks and tackle their non-performing loans. Not allowed to use the bad bank system (only accessible to bailed-out countries), Italian banks will now be allowed to sell portfolios of non-performing loans to private investors with a government guarantee -- priced at market rates. The secured deal Renzi brokered will probably buy some time for the banking sector by increasing stability. However, the negotiated system falls short of the advantages a "bad bank" system would have offered, and thus fails to eradicate the systemic threat.
Furthermore, Renzi will not be spared by structural flows in Italian politics that could well infect his own party. In March, his industry minister resigned after the publication of a recorded conversation in which she assured her partner the government would pass legislation that helped his energy business.
Finally, the prime minister is threatened by the proximity of Libya, just 290 miles from the Italian island of Lampedusa, and the potential refugee inflow and terrorist threat emanating from this failed state. He will probably push for a European intervention, and keep close relations with Russia for potential rescue if the crisis spills out of control there.
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The sun sets over the harbor on April 24, 2015 in Lampedusa, Italy. (Photo by Dan Kitwood/Getty Images)

If he wants to leave a deep imprint on Italy and Europe and be celebrated for his reforms and leadership, Matteo Renzi must keep using habile politics to implement his ambitious agenda, while pleasing his electorate ahead of general elections, potentially in 2017.
A victory could entice him to engage in vast political enterprises, like reducing the North-South economic and social gap and eradicating corruption and the grip of the Mafia.
This piece first appeared on Global Risk Insights. Earlier on WorldPost:

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