Will Italy Accept Renzi's Reforms?

Renzi’s rhetoric certainly sounds encouraging to pro-reform elements in Italy and elsewhere in Europe. He has hit on well-known elements advanced by Monti, recommended by the Organization for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF), and successfully implemented in Germany a decade ago. His program would: (1) improve the competitiveness of Italian business and encourage hiring as well as business expansion by cutting payroll and business taxes, the so-called tax wedge between the cost to business of an employee and a workers’ take-home pay; (2) cut wasteful public spending and rationalize work incentives by consolidating welfare and unemployment benefits; (3) encourage business to hire more freely by easing stringent hiring and firing rules; and (4) increase efficiency and competitiveness by encouraging company-by-company instead of national wage negotiations. He has at times also alluded to judicial reform to shorten the time it takes to enforce a contract, currently more than twice as long in Italy as the average of developed economies. And he has spoken of political reform to stop the revolving door of governments that have typified Italian politics since 1945. On these last two matters, however, he has remained vague.