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All atwitter about Italian PM

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When Matteo Renzi became Italy’s youngest prime minister in February, an old video turned up of him as a student in an amateur sketch playing the part of Silvio Berlusconi, the tycoon who has dominated Italian politics for 20 years. Deriding rivals as communists, promising to double salaries, offering to turn a cardinal into a pope, this Renzi-Berlusconi broke into song, promising "a government of brilliant people."

The parody has a strange ring of contemporary truth. To many Italians, Renzi looks like a Berlusconi of the left. Although he does not suffer from a questionable love life, conflicts of interest and battles with judges, Renzi is a showman and headline-grabber rather like Berlusconi. As mayor of Florence, he appeared on a magazine cover in a leather jacket posing as The Fonz in the television series Happy Days.

If Berlusconi was a master of television, Renzi is a devotee of the Internet and social media. Like Berlusconi in the 1990s, he is an outsider who has triumphed amid the collapse of a discredited political order.

In Rome’s fusty palaces, with their tail-coated ushers, a gerontocracy has been swept aside by mayors from the provinces. In May’s European election, Renzi’s Democratic Party (PD) secured 41 per cent of the vote — the highest score for a single party since the 1950s. Unlike in other parts of Europe, in Italy populist insurgents lost support. The PD is now the largest national party in the European Parliament. No wonder Angela Merkel, the German chancellor, recently greeted Renzi as the "matador."

As Italy takes over the European Union’s rotating presidency, Renzi enjoys unusual influence. One reason is his electoral success, which has partly legitimized the palace coup in which he pushed aside his colleague, Enrico Letta, despite a soothing Twitter hashtag #enricostaisereno (#enricodontworry). Another reason is fear of the alternative: the loudmouthed ex-comic, Beppe Grillo, whose Five Star Movement is Italy’s second-largest party. A third factor is fear of Italy itself. The eurozone’s third-largest economy is still shrinking (GDP per head is smaller than when the euro began in 1999), and unemployment is rising. Its public-debt burden, at 134 per cent of GDP, is the heaviest after Greece. Italy is too big to fail and too big to save. If it goes down, so does the euro.

So Renzi faces one persistent question: Can he save Italy, or will he turn out to be as ineffective as others before him? Italians still quote the words of a former prime minister, Giovanni Giolitti (also often attributed to Mussolini): "Governing Italy is not impossible; it is pointless."

After only four months in power, it is early to judge Renzi. In rhetoric, at least, he embraces comprehensive reform and free markets. Italy must change in order to change Europe, he insists. His promise to bring in a big reform every month was overblown. Now Renzi says he needs 1,000 days to make a difference, not 100. On the flip side of his youth and energy are inexperience, improvisation and moments of vacuity. His personal style may hamper systematic government. This week Renzi tweeted a picture of his desk, meant to show he was hard at work (hashtagged #lavoltabuona, or #thetimeisright), but some saw only a disorganized jumble of papers, pens, highlighters and half-drunk orange juice.

Renzi’s clearest achievement has been tax relief worth 80 euros ($117) a month to poor workers, dished out in May, just in time for the European election. Bigger ones may yet be constitutional change to cut back the Senate and rebalance state powers, and a new electoral law. Dissenters are everywhere, but Renzi seems close to a deal, if only because all fear elections and the Renzi whirlwind.

Yet doubts persist. Some critics say Renzi has signed a pact with the devil (Berlusconi), perhaps in exchange for some hidden promise of protection, thus rehabilitating a convicted fraudster. The focus on institutional change distracts from urgently needed reforms to a stagnant economy and an ossified bureaucracy. Hundreds of decrees and laws already adopted are yet to be implemented. Renzi’s devotees retort that they must deal with Berlusconi, as with Grillo, to secure change. They also argue that institutional reform is the biggest structural reform.

Renzi hopes that his reforms will bring down Italy’s self-serving political class, known as La Casta. Yet this battle may end up wasting precious political capital on a Roman parlor game. Renzi’s achievements will be for nothing unless he can revive the economy. Fixing it needs many structural reforms, ranging from liberalization to privatizing state-owned enterprises, speeding up slothful courts and fighting endemic corruption.

Renzi has made a start. But he spends too much time lobbying the EU for more "flexibility" from fiscal rules, and too little talking about the need for more flexibility in Italy’s labor and product markets.

Instead of demanding exemptions for whole categories of spending (i.e., investment in information technology), he should do more to cut waste.

Renzi is right that excessive austerity has hurt European economies. But Italy’s problems of chronic low growth and weak productivity long predate the euro crisis. If Germany resists sharing liabilities to strengthen the euro, it is in part because of its profound suspicion of Italy. Joint Eurobonds? Germany does not want to be liable for Italy’s gargantuan debt. Loosen monetary policy? Beware of modelling the euro on the Italian lira. Bigger transfers? They would only create more moral hazard.

The biggest deficit that Renzi must contend with is credibility and lack of time. Italy needs reform to boost its potential to grow and faces years of pain to pay down its debts. Pretending there is a quick and easy way out would only invite unflattering comparisons with Berlusconi. #matteohurryup


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