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News Analysis: Italy's Renzi undermined by eroding economic growth, but experts say he must continue with reforms

English.news.cn   2014-08-28 19:06:19

By Eric J. Lyman

ROME, Aug. 28 (Xinhua) -- With Italy's already poor economic prospects weakening and threatening the aggressive reform-minded agenda of Prime Minister Matteo Renzi, experts said the only thing the 39-year-old leader can do is stay the course.

Earlier this year, there were signs that Italy's moribund economy might be turning around: the economy showed its first quarter of economic growth since 2011, while consumer confidence and industrial production both ticked higher. A landslide victory for Renzi's allies in May's European Parliament vote gave the prime minister a powerful electoral mandate.

But the turnaround was short lived. The economy contracted for the next two quarters, sliding back into recession. And though consumer confidence remains higher than in 2013, industrial production flattened out and unemployment levels remain stubbornly high. Public debt is now more than 136 percent of the country's gross domestic product, compared to a little over 130 percent a year ago.

And it could get worse: the Taranto branch of Italy's industrial association Confindustria wrote in an open letter to Renzi "We cannot keep going like this," saying the southern region is "an industrial desert" with small companies at risk of closing and laying off legions of workers.

Even more dramatically, Eugenio Scalfari, one of Italy's best known journalists and commentators, suggested that to save Italy the government should consider "putting itself under the troika of the European Commission, the European Central Bank, and the International Monetary Fund."

"The situation is bad and getting worse, and it's all the more worrying because it stands in stark contrast to the hopefulness of the early period of the Renzi government," Massimo Zenato, a University of Modena economist and author, said in an interview, referring to a period of high approval levels after Renzi took power in February.

What can the former mayor of Florence do to change the course? Experts say he has to keep doing what he's tried to do.

"The worst mistake right now would be to pass some temporary measures as a kind of quick fix," Zenato said. "Renzi has to keep hammering away at the kind of structural changes he has promised."

Franco Pavoncello, a political scientist and president of John Cabot University in Rome, agreed.

"It's clear Renzi's honeymoon is over, but he cannot change course," Pavoncello told Xinhua. "He is the only figure who can make the fundamental reforms that will create context for growth in two or three years' time."

Zenato, Pavoncello, and others listed labor law reform, reducing the country's bloated bureaucracy, new education spending, incentives for increasing research and development spending, reducing the record-high tax burden, and reforming the country's snail-paced justice system as some of the areas where Renzi must make significant changes.

"It is essential to break the habit of judging progress by looking at growth in the last quarter," ABS Securities economic analyst Sandro Filiberto said in an interview. "These problems were not created in a quarter and they will not be solved in a quarter, or even two or three or four quarters."

It's not clear how long Renzi will have before Italians start to lose confidence in him. Opinion polls show the prime minister's popularity falling, but still higher than his most recent predecessors six months into their governments.

Pavoncello said Renzi probably still has several months for his reforms to start gaining traction.

"I don't see anything that could happen in the next two or three months that would change Renzi's prospects, and he probably has much longer than that," Pavoncello said. "Things are bad everywhere across Europe, and I think most people understand that we're in the middle of a long process."

Editor: Shen Qing
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