January 13, 2014 6:24 pm

Renzi’s gamble is a dice worth rolling

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Case for reforming Italy’s labour market is overwhelming

For all the beauty of its landscapes and the vitality of its residents, it has become increasingly hard to be optimistic about Italy. Rome may have emerged from the longest recession since the war but the recovery is expected to be painfully slow. Unemployment continues to soar, forcing thousands of young graduates to flee abroad in search of a job. Businesses are also on the run, as they prefer to relocate elsewhere rather than put up with high taxes and a mind-numbing bureaucracy.

For two decades the elite in Rome have done very little to end this drift. True, the cross-party consensus to keep the public accounts in order has been remarkable. But neither the right nor the left has shown much appetite for confronting the vested interests that dominate Italy’s sclerotic economy. Lack of reform risks making all the painful belt-tightening of the past few years an exercise in futility. Without sustained growth, it will be impossible for Rome to sustain its public debt – now about 130 per cent of national income.

The best hope lies in a new generation of politicians less tied to the old system with all its compromises and failings. This is why so much hope is invested in Matteo Renzi, the 39-year-old mayor of Florence, who last December won a landslide in the primaries of the centre-left Democratic party. He has now launched his so-called Jobs Act, a 15-point proposal aimed at boosting employment by reforming Italy’s labour market.

He will flesh out the exact details on Thursday. But, for now, there is much to like in what he is advocating. For example, cutting payroll taxes would help to lower labour costs, which remain stubbornly high in spite of the economic crisis. This is essential if Italy is to attract new investment.

The most interesting aspect of the proposal concerns his willingness to make Italy’s labour market more flexible for the newly hired. Under the current system, employers are reluctant to give young Italians permanent contracts as they fear it will be impossible to dismiss them if they do not perform. Mr Renzi wants to introduce a single, open-ended contract, characterised by a gradual increase of employment rights with tenure. This encourages the creation of new permanent jobs, as employers have more time to learn about the skills of those they put on staff.

Mr Renzi is also calling for an overhaul of Italy’s dismal active labour market policies and for a shake-up in the system of unemployment benefits. There are still doubts over where he can find the resources needed to fund these changes. But both steps could go some way towards ensuring that those out of work have the right support needed to find new employment.

If Mr Renzi does not water down his plans, the biggest question becomes whether he can implement them. Others have fallen at the first obstacle. The Democrats do not govern alone, but have to rely on the support of a centrist party and a rightwing group led by Angelino Alfano, deputy prime minister. Mr Alfano has already criticised the Jobs Act and may oppose it when it is presented.

There are also questions over how committed Mr Renzi is to his plan. Some Rome-watchers fear his proposal is a cunning political ploy, aimed at creating a split in the government in the hope of triggering an early election.

Mr Renzi’s reformist drive should not stop halfway. When he presents his plan on Thursday he should announce what he believes is needed to transform Italy’s labour market. He should then commit to these proposals and push the government, led by Enrico Letta, to implement them. Of course, he may find it impossible to have his way. But voters would then know he is genuinely different from those who have contributed to Italy’s crisis.

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