20 October 2013

Wolfgang Münchau: Italy misses the chance to reform

The decline and fall of [Monti] the former European commissioner is a cautionary tale about an outsider’s sudden rise to power – and more importantly, about the hopelessness of economic reform in Italy. In his substantive criticism of the budget – proposed by the governing coalition of which Civic Choice is a member – Mr Monti was right. The budget reshuffled tiny amounts of spending and taxation, and missed a big opportunity for reforms.

Instead of accepting a breach in fiscal rules as the price of pursuing reforms, Rome has chosen fiscal compliance – and no reform. With no prospect of growth, the only way the government will hit its fiscal targets will be through a toxic combination of austerity and smoke-and-mirror accounting tricks, such as the use of one-off revenue measures to fund permanent expenditures.

The next few months will see many amendments to the budget, the purpose of which will not be to improve its quality but to cater to special interests. It is possible that PDL hawks might seek an excuse to let the government fail. Would new elections help? Mr Monti’s experience shows that reformers in Italy do not necessarily win elections.

The centre-right, meanwhile, is currently preoccupied contemplating life after Mr Berlusconi’s increasingly certain political exit. The PDL is not reformist either. It is the ultimate special interest party.

The best hope may lie with Matteo Renzi, the 38-year old mayor of Florence, who is the only top politician who both stands a chance of being elected and who offers some clarity about what needs to be done, such as bigger cuts in the tax wedge. Mr Renzi may soon take over the leadership of the Democrats. His first job would be to align a reluctant party behind his agenda, a task of a similar scale to the one faced by successive leaders of the British Labour party in the 1980s and 1990s.

We know such transformations take a long time. But Italy does not have that time. The Italian establishment’s preference of not reforming, not defaulting, and staying in the eurozone is inconsistent. It has been the great failure of Italy’s political establishment, including Mr Monti in his role as a politician, to make that clear.

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