Economic Recovery

The Italian Job

matteo Renzi action press
Many Italians are seeing results from Matteo Renzi's broad reforms.
  • Why it matters

    Why it matters

    If Mr. Renzi continues to  reform the labor markets, the judiciary and public administration, foreign investors will again be interested in doing deals with Italian partners.

  • Facts

    Facts

    • The Organization for Economic Co-operation and Development (OECD) estimates 0.4 percent growth for Italy in 2015.
    • There were 130,000 jobs created in 2014.
    • Mr. Renzi abolished a level of local administrative across 140 provinces.
  • Audio

    Audio

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Brunello Cucinelli was in high spirits at the recent fashion week in Milan. The Italian designer, and founder of the eponymous, publicly traded fashion house, was not just thrilled with the amount of orders he’d taken, but also about the future of his country in general.

Mr. Cucinelli praised the cheap euro, the monetary policies of the European Central Bank (ECB), Italy’s reforms, the International Monetary Fund (IMF) and the European Union.

“It couldn’t be better,” Mr. Cucinelli said. “We are experiencing a rebirth in Italy at the moment and we have Renzi to thank for it.”

It’s been a year since Matteo Renzi took office as prime minister.

The European Union Commission recently gave the green light to his budget while the recession has officially ended in the eurozone’s third-largest economy.

Several institutions have raised their growth forecasts for Italy in 2015. The Organization for Economic Co-operation and Development’s (OECD) estimates growth of 0.4 percent. The European Union suggests0.6 percent to the economic research institute Prometeia is even more optimistic with forecasts of 0.7 percent.

Consumer and business confidence is at its highest level since 2002. Unemployment dipped slightly in the past two months and 130,000 jobs were created in 2014.

Although Mr. Renzi quickly backtracked on his campaign promise of “a reform a month” and turned it a 1,000-day program instead, his labor market reform already is law.

Judicial reform, electoral law reform and public administration reforms are well underway. With the constitutional reform, which will be passed in the next few days, Mr. Renzi will essentially have done away with the senate as a second chamber, guaranteeing laws will be passed more quickly in the near future.  On top of that, he did away with a superfluous local administrative level across 140 provinces.

In its latest report on Italy, the OECD wrote, “The reforms could increase the level of GDP by 3.4 percent within five years and by 6.3 percent within ten years.” To accomplish this, the report noted, all proposed reforms must be “completely and effectively implemented.” Constitutional changes are particularly important, it added, since laws will pass through parliament more quickly. “This will ensure that future reforms will have a better chance of passing,” the report said.

The government has made permanent work contracts more attractive than fixed-term contracts by lowering taxes and incidental wage costs for new hires. To offer a worker a net pay of around €13,000 ($14,466) per year, employers now need only lay out €15,000 ($16,692) for three years instead of €20,000 ($22,256) for a new employee. Job guarantees come only after a couple of years.

“This is a government that, for once, is finally making decisions. This is something we were not used to in Italy.”

Federico Imbert, Italy CEO, Credit Suisse

Mr. Renzi’s honeymoon with the country’s businessmen continues, even among those without any left-wing sympathies. One example is Pierluigi Coppo, president of the flatware manufacturer Sambonet, who recently took over Rosenthal.

“My opinion of Renzi is positive,” Mr. Coppo said. “In the beginning, I also thought he was full of hot air. But now, I have the feeling that something is changing in Italy, that polices are being remade and becoming more business-friendly. Unlike his predecessors, Mr. Renzi didn’t start off by sitting down for a round table with the unions.”

Indeed, Mr. Renzi often gets into fights with the unions, as well as with business associations and judges. He has shortened judges’ vacations and made them personally responsible for erroneous decisions.

Mr. Coppo said that when business partners in Germany ask him how things are in Italy, he replies, “Things actually could change for us with Renzi, if they don’t stop him.”

And at the moment, Mr. Renzi appears unstoppable. In February, he successfully put forward his candidate for the Italian presidency. He is so popular in the polls that no one dares push for new elections.

Mr. Renzi beats former Prime Minister Silvio Berlusconi on his own ground by connecting with the average citizen. He speaks the language of the people and uses Twitter to announce his decisions.

Stefania Tomasini, chief economist at Prometeia, is convinced. She estimates that labor market reform will create another 110,000 jobs this year while consumer spending improves. “We have come to a turning point,” Ms. Tomasini said. She believes government actions, including offering €80 ($89) a month for low earners, baby bonuses and other measures, will put an extra €9.2 billion ($10.24 billion) in Italian pockets along with another €10 billion ($11.13 billion) from lower gas prices.

Sergio De Nardis, chief economist at the Nomisma economic research institute, declared, “The recession is over. The upswing is here.” The only question, he said, is how strong the improvement will be, adding that “0.6 percent or 0.8 percent is not enough to compensate for the 10 percent Italy’s economy has lost since 2007. But Renzi has done everything possible within the narrow limits that Italy can maneuver.”

The growth rate isn’t the focus for Camilla Lumelli of the Ferrari wine producers in Trento. “Whether we have 0.5 percent or 0.9 percent growth is not the issue. The fact is that reforms now are being implemented,” she said. “We have made no reforms for 30 years. We can’t now expect Renzi to do everything all at once.”

Stefan Neuhaus, chief executive office of the Tui Castelfalfi resort in the Tuscany, said inefficient bureaucracy is yet another area that Mr. Renzi must tackle. “Something must be done here immediately to arouse the willingness of foreign investors to invest,” he said.

Nonetheless, things are moving forward Italy. As Federico Imbert, Credit Suisse’s chief executive officer in Italy, said, “This is a government that, for once, is finally making decisions. This is something we were not used to in Italy.”

 

 

Katharina Kort reports on Italy’s politics and economy for Handelsblatt. To contact her: kort@handelsblatt.com.

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