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Italy: Matteo Renzi takes over as Prime Minister, plans radical reform agenda

February 24, 2014

Matteo Renzi, former mayor of Florence and president of the majority Democratic Party (PD), took over as Prime Minister from ex-premier Enrico Letta following an internal power struggle within the PD, which led Letta to step down. In the weeks leading up to Letta's resignation, Renzi, who won PD leadership after winning primary elections by a landslide in December, had repeatedly criticized the government's lack of action in addressing the country's problems and had pushed the government to either move ahead with reforms or call for elections. Renzi, who was sworn in on 22 February, is Italy's youngest prime minister and the third Italian premier in a row to take office without winning a parliamentary election.

Renzi has vowed to push an ambitious reform agenda in an effort to kick-start the ailing economy, which includes "a reform a month" that will take place during his first five months of office. In order to prop up the ailing labor market, Renzi aims to reform the job protection that currently hinders new hiring. To this end, he proposed the adoption of a single, open-ended work contract that would include progressive protection and also proposed creating a broader system of unemployment benefits. Renzi announced that he wants to reduce fiscal pressure and, in particular, taxes on labor. Resources to finance the tax cuts will be found through "due diligence" of the fiscal accounts and an increased fight against tax evasion. In addition, the government is aiming to push forward a set of institutional reforms, including reforming the current voting law, which was declared unconstitutional by the Constitutional Court in 2013. This is the first reform that the government intends to tackle.

The market reaction to Renzi's new role was broadly positive. Yields on Italy's 10-year bonds fell to the lowest level in eight years. The backdrop of the loose monetary policy offered by the ECB along with expectations of further easing combined with the first signs of economic recovery have contributed to the positive sentiment in the market. It is still unclear, however, whether Renzi will have enough clout in the Parliament to push his agenda forward. The government is currently supported by the same shaky left-right coalition that backed Letta's administration - the coalition, which was already weak, grew more so after Silvio Berlusconi pulled his Forza Italia party out of the coalition in December. In fact, Berlusconi's support will be crucial to reforms that involve a broader majority (i.e. reform of the electoral law). Against this backdrop, analysts believe that the stability of the coalition will soon be put to test and that snap elections taking place this year cannot be ruled out.


Author:, Head of Data Solutions

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