Opinion

Hugo Dixon

Matteo Renzi is on a roll

Hugo Dixon
Jul 7, 2014 09:00 UTC

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.

Matteo Renzi is on a roll. The Italian prime minister is a brilliant politician. His youthful dynamism has bought him time with his people, the markets and the European Union to carry out the immense job of reforming Italy. But he has yet to show he can execute. He now needs to, because even his time will run out.

Renzi has had a good four months in the job after he pushed aside his predecessor Enrico Letta. His emphatic victory in the European Parliament elections gave him a legitimacy that the murky manner of his ascension lacked.

He is in the astonishing position of dominating not just the left of Italian politics, from which he comes, but also the centre – as well as being popular with the right. The latter is in disarray as Silvio Berlusconi’s career has disintegrated. Meanwhile, Renzi has managed the feat of portraying himself as anti-system, despite being prime minister. This has undercut the appeal of Beppe Grillo’s protest movement. Renzi looks like he’ll stay in the job for three years and maybe many more.

He has also turned his charms on Europe. He has succeeded in simultaneously forging a good relationship with Germany’s right-wing Angela Merkel and being seen as a champion for the European left. Renzi brokered a deal at last month’s EU summit giving countries more fiscal flexibility provided they stick within the euro zone’s budget rules.

Renzi rolls the dice

Hugo Dixon
Feb 14, 2014 10:06 UTC

When Julius Caesar crossed the Rubicon in his bid to take control of Rome, he is reputed to have said “alea jacta est” (the die is cast). Matteo Renzi, soon-to-be Rome’s new master, has also rolled the dice. In doing so, he is taking big risks. Given Italy’s mess, one can only pray that his gamble pays off.

There are a lot of good things about Renzi, who became leader of the centre-left Democratic Party in a landslide election last December. He is young, energetic and pro-enterprise. He wants to shake up a political and economic system that has been gridlocked for a couple of decades or more – the consequence of which is an economy that has shrunk 9 percent since 2007, youth unemployment of 42 percent and government debt at 133 percent of GDP.

Still, Renzi has embarked upon a high-risk strategy by kicking out the prime minister, Enrico Letta, who is a member of his own party. His majority is unstable, he knows little about governing and he is relying on Silvio Berlusconi, arch-rival of Italy’s centre left, for a critical reform of the constitution.

Renzi-Berlusconi pact gives Italy hope

Hugo Dixon
Jan 20, 2014 10:22 UTC

A weekend pact between Matteo Renzi and Silvio Berlusconi offers new hope to Italy. The constitutional reform deal between the leader of Italy’s largest party and the leader of the opposition addresses one of the country’s biggest problems: its ungovernability. Now Renzi, who runs the centre-left Democratic Party, needs to put his energy behind key economic reforms, especially jobs and public spending.

Italy, where I spent much of last week, has been plagued for years with unstable governments. In part this is because the voting system gives a lot of power to small parties and can lead to conflicting majorities in the two houses of parliament, which have equal power.

The Renzi-Berlusconi deal aims to reinforce the power of larger parties by changing the voting system. It also would demote the upper house so that governments will only need to secure a majority in the lower one. Meanwhile, the two leaders have agreed to cut the power of Italy’s regions – a move which should save money and lead to more stream-lined decision-making.

Italy has two chances post-Berlusconi

Hugo Dixon
Dec 2, 2013 09:43 UTC

Italy seems continually condemned to disappoint. The economy has barely grown in 20 years. The younger generation is languishing without opportunity: youth unemployment stands at 41 percent. So many chances to reform the country have been wasted – and many by Silvio Berlusconi, who was finally expelled from the Senate last week after being convicted of tax fraud.

The country now has two chances to reform. The first is that Enrico Letta, the prime minister, will be emboldened to push through changes now that Berlusconi has been sent packing. If he still can’t, Matteo Renzi – who is expected to be chosen leader of the centre-left Democrats on Sunday – should force elections and show he is as radical in deed as he is in words.

Look first at Letta. He is an intelligent centrist from the Democratic party. But, since he became prime minister in April after an indecisive election result, he has not achieved much. This is largely because his government had to rely on Berlusconi’s centre-right party. The two groups found it virtually impossible to agree on anything.

Italy’s Letta makes best of bad job

Hugo Dixon
Jun 24, 2013 08:26 UTC

Italy’s new prime minister, Enrico Letta, is making the best of a bad job. After February’s inconclusive election, it looked like Italy’s dysfunctional political system might drag the country further into the abyss. There was a risk that nobody would be able to form a government, new elections would be called and that even these would end in a stalemate.

In the end, a grand coalition was formed involving Letta’s centre-left Democrats, Silvio Berlusconi’s centre-right PDL and Mario Monti’s centrist group. Putting together such a coalition was itself an achievement – given that the Democrats and Berlusconi hate one another and that the Five Star Movement, led by comedian Beppe Grillo, refused to make deals with anybody.

Even after the coalition was formed – largely as a result of pressure from Giorgio Napolitano, Italy’s respected octogenarian president – there wasn’t much hope that it could achieve anything. But Letta has been quietly getting on with reform, as I discovered when I spent a few days in Italy last week. Part of the explanation is that he is an intelligent, modest, consensus-builder rather than a charismatic figure with a big ego.

Austerity debate misses half the point

Hugo Dixon
Apr 29, 2013 09:36 UTC

The austerity debate misses half the point. It is true that governments, especially in the euro zone, shouldn’t chase an austerity spiral ever downwards. But they can’t just sit on their hands. They must drive even harder for structural reforms.

The last few weeks have witnessed a sea-change in the debate over fiscal austerity. A seminal academic paper by Carmen Reinhart and Kenneth Rogoff, which purported to show that economic growth was impaired if government debt levels exceeded 90 percent of GDP, has been discredited.

Meanwhile, the European Commission has softened its line on the merits of further deep budget cuts in peripheral economies. Spain, for example, looks like it will get until 2016 to bring its deficit down below the European Union’s magic number of 3 percent of GDP. Portugal, Greece, Italy and France are also being shown greater leniency by Brussels. One of the first things Enrico Letta, Italy’s new prime minister, said last week was that country needed to focus on growth not austerity.

Italy could do with market pressure

Hugo Dixon
Apr 15, 2013 09:34 UTC

Italy could do with some market pressure. Rome’s bond yields are now lower than they were before February’s inconclusive election. But as the politicians scheme, the economy burns. With markets calm, there is insufficient urgency to crack on with long-needed economic and political reform.

The fall in 10-year bond yields, which were 4.3 percent on Friday compared to 4.4 percent just before the election, is attributable to two factors. First, nobody wants to bet against the European Central Bank which has promised to do whatever it takes to preserve the euro. Second, the Japanese central bank’s pledge to buy gigantic quantities of bonds at home has buoyed asset prices elsewhere, including in Italy.

The backdrop to the current political crisis is starkly different to that in November 2011, when a sharp increase in bond yields created a panic which led to Silvio Berlusconi being forced out of office. Now none of the three main political blocs – Berlusconi’s centre-right group, the centre-left Democrats and Beppe Grillo’s 5-Star Movement – can govern on its own. But seven weeks have been wasted without a coalition being formed.

Markets too sanguine about Italy

Hugo Dixon
Mar 11, 2013 10:12 UTC

The markets are too sanguine about Italy. The country’s politics and economics are messed up – and there are no easy solutions. And while Rome does have the European Central Bank as a backstop, it may have to get to the brink before using it.

Investors had jitters after last month’s election result, pushing 10-year bond yields up to 4.9 percent from 4.6 percent. But by last Friday they had fallen back to 4.7 percent. Investors have convinced themselves that some political solution will be cobbled together; that, if one isn’t, it doesn’t really matter; and that, if the worst comes to the worst, the ECB will pick up the pieces by buying the country’s bonds.

Mario Draghi, the ECB president, gave some support for the latter two ideas last week. He downplayed the risks to Italy’s fiscal position by arguing that much of the country’s belt-tightening was on “automatic pilot”. He also made clear that the ECB’s bond buying plan was still available for countries that followed the rules.

Spain probably won’t catch Italian flu

Hugo Dixon
Mar 4, 2013 10:17 UTC

One knee-jerk reaction to Italy’s shock election was to worry about contagion to Spain. As Rome’s bond yields shot up last Tuesday, Madrid’s were dragged up in sympathy. These are the two troubled big beasts of the euro zone periphery and an explosion in either of them could destroy the single currency.

But Spain, where I spent part of last week, probably won’t catch Italian flu. True, the risk of Madrid being thrown off its reform path has risen since Italy’s inconclusive election. But Prime Minister Mariano Rajoy doesn’t have to face the voters for nearly three years. What’s more, the Italian vote may make euro zone policymakers less keen on austerity and so give Spain a better chance of returning to growth.

Indeed, investors have already started having second thoughts. By Friday, Madrid’s 10-year bond yield had fallen back to 5.1 percent from 5.4 percent on Tuesday. The spread between Spanish and Italian yields has shrunk to 0.3 percentage points. There’s even a chance that Madrid could enjoy lower borrowing costs than Rome in the coming weeks if Italy’s political paralysis shows no sign of resolution.

Italy could reignite euro crisis

Hugo Dixon
Feb 26, 2013 10:15 UTC

Can the Italians be serious? That is likely to be the reaction of financial markets and the country’s euro zone partners as they ponder a disastrous election result, which could reignite the euro crisis. More than half of those who voted chose one of two comedians: Beppe Grillo, who really is a stand-up comic; and Silvio Berlusconi, who drove Italy to the edge of the abyss when he was last prime minister in 2011. Both are anti-euro populists.

This comedy could easily end in tragedy. The inconclusive result has echoes of last year’s first Greek election – except that Italy is bigger and more strategic. The country faces political paralysis, while its economy is shrinking and its debt is rising. The European Commission forecast last week that GDP would fall a further 1 percent this year after last’s year 2.2 percent drop. Debt, meanwhile, would reach 128 percent of GDP by the end of this year.

The euro crisis went into remission after the European Central Bank’s president Mario Draghi promised last summer to do “whatever it takes” to preserve the single currency. But, if Italy proves ungovernable during this critical time, even the ECB’s safety net may not work.