#TWENTY-FOUR VERSUS #TWELVE: TAKING STOCK OF THE RENZI GOVERNMENT

March 2016

22 February 2016: the Renzi Government, two years to the day. With his typical, timely communicative style, the Prime Minister presented #twenty-four, a set of slides (his usual self-celebratory touch) illustrating the main results of his Presidency.The #twenty-four series compares Italy today and Italy two years ago; it uses the classic before/after method to provide important statistics about youth unemployment, trend in GDP, etc.The slides are concise by nature. However, presenting numbers alone, without any details about those figures, neither explains what really happened, nor does it clarify the Government’s real merits. So we’ll try, in #twelve slides!

LIKE CLOCKWORK, ALMOST PREDICTABLE

POLITICAL AND INSTITUTIONAL REFORMS

The Renzi Government can be credited with the most radical changes in the political and institutional framework ever made in recent years. It wouldn’t be irreverent to say, as many maintain, that this is a new “constitutional moment” in Italy’s history.There are two main reforms: the new electoral law, the Italicum, and the constitutional reform, still being debated. The two reforms are closely related. The Prime Minister has taken a gamble: the new law only affects the Chamber of Deputies and will come into force in July 2016. The Italicum ignores the Senate, because according to the Renzi-Boschi constitutional reform senators will no longer vote motions of no confidence and will no longer be chosen by the electorate. If elections were to be held before approval of the Senate reform, Italy would vote with two different electoral laws: a big risk indeed!

The Government considers that the Italicum and the constitutional reform will achieve the same goals: to simplify the political framework, ensure greater governability, and cut short the time it takes for Parliament to pass laws.The Italicum will give a majority premium to the list that wins 40% of the popular vote; if this minimum threshold is not reached there will be a second round run-off. Parties must pass a 3% minimum threshold in the first round. In short: greater governability seems achievable, although there is a real risk of an extremely distorted parliamentary representativity. Amongst other things, the constitutional reform changes the Senate: down from 315 to 100 senators nominated by Municipalities and Regional Councils. A marginal role in the approval of laws and no participation in the election of the President of the Republic.But are we sure laws can’t be approved within a set time by simply modifying the regulations governing the Chamber of Deputies and Senate? Why change the Constitution?

THE END OF THE PERFECT BICAMERAL SYSTEM. WAS IT WORTH IT?

In the so-called “Delrio Law” the Government has revised the functions of Provinces, Metropolitan Cities and Municipalities, but without modifying Article V of the Constitution. Modifications to their functions will deal with by the constitutional reform.Although Provinces continue to exist they have lost nearly all their functions: they will only be responsible for plans regarding transportation, the environment and mobility, plus school building management. Provincial representatives – no longer elected – will receive no allowance. However, overall savings are lower than the figures provided by government: roughly ten million, i.e., the councillors’ salaries. Ten Metropolitan Cities (Turin, Milan, Venice, Genoa, Bologna, Florence, Roma Capitale, Bari, Naples and Reggio Calabria) have finally been created to replace their respective Provinces. ‘Large area’ functions for improved government of homogeneous territories. A point in favour of Renzi, but also a huge problem: the resources to make them work are still insufficient.

PROVINCES ADIEU. WELCOME METROPOLITAN CITIES.

THE LABOUR MARKET REFORM

The labour market reform, the so-called Jobs Act, is one of the pièces de résistance of the Renzi Government: the main novelties are the new increasing law protection employment contract and the amendment of Article 18. In addition, reduced social security contributions for new employees (for 2015).According to the figures provided by INPS (Italian Social Security Service), since Renzi took office these measures have led to a 0.6% drop in unemployment and roughly 606,000 new labour contracts in 2015 compared to 2014.On the contrary, according to ISTAT (Italian National Institute of Statistics), the net number of new jobs is roughly 112,000: INPS calculates every new labour contract signed in Italy (i.e., if a person has three contracts with three companies INPS adds them together), while ISTAT considers the net number of workers. However, there has been no reduction in the employment gap between men and women.

A BLOW TO PRECARIOUS EMPLOYMENT?

The Jobs Act has undoubtedly created employment, but less than expected. Modification of Article 18 has de facto legitimised economic dismissal: the worker simply receives a termination indemnity.The increasing law protection contract certainly has its advantages: it has eliminated the contract jungle and severely curtailed precariousness after a certain number of years in employment. Nevertheless, during the first three years of employment the worker is considered to be on probation and can be dismissed without the right to be reinstated.Reduced social security contributions for businesses who hire workers have had a balm-like effect in 2015: although the new Stability Law has extended it to 2016, it has significantly reduced the amount.

THE “GOOD SCHOOL”. A GOOD REFORM?

Every Government’s idea about education, scholastic reform, and the ensuing students’ protests it triggers, are part of a Government’s ‘dowry’. The Renzi Government is no exception: when the ‘Good School’ was approved, the students took to the streets!The Reform has its strong points: investment in school buildings; greater resources for culture; hiring of roughly 150,000 precarious workers before 2016. However it drew harsh criticism regarding the possibility for Principals to choose their own teachers: this prerogative is more suited to a manager in a private business than to the head of a public educational facility. Schools have been given additional functions, but it will take a few years for schools to function at operating speed and thus allow assessment. Supporters of the reform say it’s a step forward towards modernisation and independence. Detractors consider the ‘Good School’ as a way to privatise public education.

TAXES, DUTIES AND LEVIES: WHAT’S CHANGED?

However has little effect on the tax burden, because the money needed to finance this manoeuvre comes in part from other taxes. The tax wedge has been reduced: apart from the elimi-nation of social security contributions for newly-hired workers, labour costs are not longer included in the taxable amount of IRAP. Then there’s the 80 euro a month for low income employ-ees. At a cost of roughly 10 billion euro. Money hasn’t come in, but it was clear from the start that having your cake and eating it was out of the question!

The Italian tax system need-ed to be simplified and the tax burden on citizens need-ed to be reduced. Renzi knew this and has done something about it, even if the tax burden in Italy is still the highest in the EU: over 64% for businesses.The IMU tax on people’s pri-mary residence is long gone, and in June 2016 the TASI will follow suit. This gives families an economic benefit.

Of all the reforms launched by the Renzi Government, and several undeniable achievements, reviving economic growth is the least suc-cessful (and certainly the most difficult). In 2015 the GDP grew by an anaemic 0.6%: Italy is the last carriage of the European train in which growth is better everywhere else.Several commendable reforms, such as the Patent Box and Unlock Italy, don’t seem to have made much difference: consumption and in-dustrial production levels are practically identical to what they were two years ago. Instead, Renzi has done much better when it comes to foreign investments: on this subject he’s passed with flying colours!The economic change of pace also depends on foreign variables, such as the price of oil, the cost of energy and competition with non-EU countries: instead there’s been a lack of that little extra courage needed to stimulate – for example – domestic demand.

REVIVING GROWTH: WHEN?

THE ENVIRONMENT AND PROTECTION OF THE TERRITORY

Hydrogeological instability is one of Italy’s major problems; heavy rains can trigger landslides, destroy houses and cause victims. The Renzi government has promised to invest 9 billion euro in seven years to heal Italy’s wounded territory.Seven hundred of the 1.3 billion euro envisaged in the first Plan have already been allocated: good. Bureaucratic hold-ups and red tape are the problem (most of the resources are allocated to Regions and Special Commissioners for under compulsory administration): at present, only a small amount of these funds has actually led to worksites that are already operational.The Unlock Italy decree by the Renzi Government has declared activities involving the ‘research and cultivation of hydrocarbons’ as strategic; in a nutshell, it has sanctioned drilling in exchange for more oil: was it a good choice? On April 17 the Italians will be able to say yea or nay in the abrogative referendum!

Matteo Renzi has adopted a two-step ap-proach to the European Union: in agree-ment with the establishment until the rather unexciting Semester of the Ital-ian Presidency, he has now vigorously raised his voice during his second year in office.In short, after maintaining a unified front with Angela Merkel – albeit with some differences – during negotiations with Greece when the first Tsipras govern-ment was in power, Renzi has begun to ask Europe for greater flexibility regard-ing public finances.

RENZI AND EUROPE: IF THIS IS LOVE…

After all, nearly all the ma-noeuvres by the Italian Gov-ernment are implemented in deficit and will only be suc-cessful if Europe lessens its grip, especially because the long-awaited spending review has never been im-plemented: in the spring the EU will let Italy know if it ac-cepts Renzi’s proposals. Let’s hope for the best!

WHERE THERE’S SMOKE THERE’S FIRE?

So, two years with a Renzi Government: a great many announcements, and many achievements. Some of which we feel are steps forward, others are instead more to do with communication rather than substance. Overall, however, the scales tip in his favour while we wait for several crucial problems to be solved. An example? Managing the migrant crisis; greater commitment to achieve economic growth; greater flexibility accorded by the EU; the cadastral reform; (what kind of?) completion of the initiative already underway regarding civil unions and adoptions. In addition, the constitutional reform has to be completed, otherwise there will be an inevitable short circuit between the electoral law and new structure of local authorities.2016 will be a watershed year for the Renzi Government: we will wait confidently to see whether, in twelve months’ time, some of the priorities listed here will be inserted in #thirty-six, the next set of slides which – we are absolutely certain – we will be able to examine next February! Unless...

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