After Hype, It's Showtime for Renzi

Feb. 23, 2014 8:43 p.m. ETThis wasn’t how Matteo Renzi’s destiny was supposed to unfold.
For years, admirers of the newly installed Italian prime minister have gushed about his energy, his ability and his supreme political skills. Despite his age—at 39, he is Italy’s youngest-ever leader—they were convinced it was only a matter of time before Mr. Renzi swept to power on a tide of popular support to revitalize the economy and public life.
But there have been no elections, only a palace coup. Having dispatched the former prime minister and his party colleague, Enrico Letta, with remarkable ruthlessness, Mr. Renzi starts work this week with the same coalition, same parliament and a number of the same cabinet members.
To be fair, Mr. Renzi knows his career now depends on delivering the overhauls that he says Italy needs and which he accused Mr. Letta of failing to deliver. His decision to force out Mr. Letta was a calculated risk, says Roberto D’Alimonte, professor of politics at Rome’s Luiss University and an adviser to Mr. Renzi.

Italian Prime Minister Matteo Renzi European Pressphoto Agency

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Mr. Renzi’s original plan had been to support Mr. Letta until his government had put in place a new voting system and reformed the senate, the professor said. At that point, the country could hold elections, which he hoped would result in a Democratic Party majority government led by himself.
But this was likely to take at least a year because Italian senate reform—essential to secure the support of Forza Italia, the main opposition party led by former Prime Minister Silvio Berlusconi—requires constitutional change. Mr. Renzi calculated he couldn’t afford to wait for a year, Mr. D’Alimonte said. As other crisis countries started to recover, Italy was falling further behind and voters were getting frustrated. Forcing early elections in the absence of electoral reform was also out of the question. That left Plan C—ousting Mr. Letta and becoming prime minister without an election—as the least bad option.
But can Mr. Renzi succeed where Mr. Letta failed? He has already set out a bold agenda for his first 100 days, including electoral, labor and tax reforms and an overhaul of the public administration.
Mr. Renzi may consider his timing is propitious.
After all, he already has an electoral-reform deal with former Prime Minister Silvio Berlusconi. His proposed labor reforms are similar to those attempted by former Prime Minister Mario Monti, which were largely scuttled by Mr. Renzi’s party.
Meanwhile, a detailed plan for €32 billion ($44 billion) of spending cuts will land on incoming Economy Minister Pier Carlo Padoan’s desk this week, drawn up by former International Monetary Fund director of fiscal affairs Carlo Cottarelli. And Mr. Renzi’s plans for public administration reform should appeal to supporters of the populist Five Star Movement. Indeed, its leader, Beppe Grillo, accused him of stealing his policies.
But this is just a start. Mr. Renzi will need to be much bolder to pull Italy out of the mire. To have any chance of success, three things are required.
First, he must convince Italians of the need for reform. Italy stands out among crisis-stricken countries in the euro zone for its reluctance to recognize that its misfortunes are largely homegrown, preferring to blame outside forces—whether Germany, Brussels or the financial markets. In the past five years, Italy has swung from being one of the most pro-European countries to one of the least.
Mr. Renzi has sometimes appeared to pander to this populism with talk of the need to implement reforms so that “we can tell Europe what we want, rather than Europe tell us what to do.” Yet all the recent evidence from the euro crisis suggests that reforms are most likely to be successful when there is a strong degree of domestic commitment.
His second challenge will be to face down the vested interests that have blocked previous efforts to reform Italy. These include the trade unions, the Confindustria business lobby,the Catholic Church, the foundations that control much of the banking sector, the civil service professional guilds and the justice system. Corruption, cronyism, corporatism and rent-seeking are endemic.
Third, he needs time. The conventional wisdom is that reforms are very hard to deliver with a coalition government or in the absence of market or external pressure, or a clear electoral mandate.
Mr. Renzi’s record in Florence, where he privatized the bus service in the face of union opposition, is encouraging. But he has no government experience at the national level. Successful reform will depend on political skill as much as political will.
It is easy to find exceptions to each of these rules. What is harder to identify is any significant reform delivered by a government within a year of an election. That is hardly surprising since reform in the short-term invariably creates more losers than winners.
It was only after elections in the U.K., Spain, Ireland, Portugal and Greece that those countries embarked on major reform programs. France’s President François Hollande wouldn’t be embarking on his new reform program now if he didn’t still have three years before he needs to face the voters again. In contrast, it was the prospect of imminent elections that ended the reform ambitions of Mr. Letta and Mr. Monti.
Mr. Renzi has been criticized for stating that he wants this government to serve until the current parliament ends in 2018 rather than to push for elections in 2015. In reality, Mr. Renzi has little option but to try to keep his coalition together if he is to avoid his reform program rapidly running into the political sand, with dire consequences for Italy’s economy—not to mention his own career.
But Mr. Renzi must operate within the constraints of the current constitution with the added disadvantage that he isn’t even a member of parliament. To keep his coalition together, his political skills will need to be every bit as formidable as his supporters say they are. And then some.
Write to Simon Nixon at simon.nixon@wsj.com

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