Italy gets its mojo back – at least in Davos

By Rob Cox
January 23, 2015

By Rob Cox

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

For the first time in recent memory, the World Economic Forum has a distinctly Italian accent. After keeping a lower profile of late as its economy – once larger than Britain’s – contracted, the actual sick man of Europe struck “la bella figura” at the annual gathering of plutocrats in Davos, Switzerland. Prime Minister Matteo Renzi’s disruptive style has put a spring in the step of Italy’s business leaders. Real reform, however, is only just beginning.

The Italian presence was hard to miss, and not just on the official WEF program, where the 40-year-old Renzi was the subject of a special session entitled “Transformational Leadership.”

Chiefs of the country’s top banks, state-oil giant Eni, insurer Generali – even the head of the once-secretive Mediobanca – and their entourages jostled through security lines. Opera tenor Andrea Bocelli kicked off the proceedings. Global brewer SABMiller hosted a “Taste of Italy” reception.

The country’s corporate and political leaders have had good reason to avoid Davos. Italy’s output has shrunk by about a tenth over the last decade. The unemployment rate, especially among young people, exceeds 13 percent. GDP growth is forecast by the International Monetary Fund at a recently slashed 0.4 percent.

Renzi nevertheless took the stage in Davos with some significant reform victories, which Italian executives say could help the economy expand beyond those expectations. He has pushed through labor rules that will allow companies to hire and fire more easily. Italy’s Senate this week approved an amendment to a new electoral law designed to foster more stability and efficiency in long-dysfunctional Italian politics.

And on the eve of his first Davos, Renzi approved a plan to effectively force the country’s mutually-owned banks, which account for about a fifth of the industry, to privatize. By abolishing a structure that gave every stockholder the same vote notwithstanding the number of shares held, Economy Minister Pier Carlo Padoan said much-needed consolidation will take shape. “I expect some action,” he told Reuters Breakingviews.

The risk for Renzi is that he is moving so quickly that he splinters the party. To get reforms approved, for instance, the coalition has had to rely on the opposition led by Silvio Berlusconi, whose control of his party, Forza Italia, is also tenuous. With presidential elections on the horizon, the possibility of an all-too-familiar political setback is possible.

“The most important structural reform for Italy is credibility,” he told the WEF delegates. The question is whether they take that message home with them from Davos.

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