Enrico Letta was ousted in a vote called by Renzi at a meeting of their centre-left Democratic Party, reports the BBC . The party had accused Letta of failing to tackle the ailing economy. Mayor of Florence Renzi, who has never been elected as MP, must now negotiate a deal with Letta's former coalition partners and could be sworn in on Thursday.
"I have accepted with responsibility and a sense of the importance of the challenge before me," Renzi told reporters after meeting with President Giorgio Napolitano, who handed him the task after consulting with the political parties over the weekend. "I have assured [the president] that I will dedicate all my energies during this difficult time." WSJ article
President Barroso said the Commission had "great appreciation for the great cooperation" developed with Enrico Letta, who he said had always been "a very committed European and someone with whom it is indeed a pleasure to work with". Barroso said Renzi seemed also to be a very committed European "with a deep interest in advancing the process of European integration, and with the general position of Italy being always very loyal to the European project". The Commission remained confident in Italy's willingness and capacity to pursue its reform and consolidation efforts, he said.
Bloomberg reports that Renzi, 39, is set to become the youngest prime minister in post-World War II Italy if he can pull together majorities in both houses of parliament. The leaders of some of the smaller parties have said they are open to backing Renzi. “We will take the time that’s needed, knowing that out there there’s a sense of urgency”, Renzi said. He needs “a few days to get around to making a final commitment”, he added. The legislature, installed after elections 12 months ago, is due to expire in 2018. If Renzi can’t secure the necessary backing in parliament, President Napolitano may dissolve the assembly and call another vote. The Democratic Party, known in Italy as the PD, has just 108 of the 320 seats in the Senate, which is the more fragmented of the two houses of parliament.
As he sets about the formation of his government, Renzi faces at least two immediate problems, writes the Irish Times. Firstly he must convince potential coalition partners, the New Centre Right (NCD), with regard to both the programme and the cabinet formation. Furthermore, ironically, he must convince the left of his own party, the Democratic Party (PD), that he has not entirely abandoned social democracy moving towards the centre.
Opposition party Forza Italia, still led by 77-year-old Silvio Berlusconi, could also unsettle the apple cart, reports CNBC. The former PM has been ejected from his seat in the Senate because of his recent conviction for tax fraud but told journalists over the weekend saying the party would be a "responsible opposition".
See also BBC profile of Matteo Renzi
Cabinet formation
Nicknamed the Rottamatore or Demolition Man for his desire to shake up the political establishment, Renzi is already struggling to fill key cabinet positions after at least three candidates rejected his job offers, reports the Telegraph. Angelino Alfano, who split from Silvio Berlusconi’s Forza Italia party last year, has already warned that his party will not tolerate any move to the Left and wants a policy pact with Renzi in writing. "We support the creation of the new government. If we say no to this government, it will not be born”, Alfano said. Renzi also faced a backlash within the PD as rebel MP Giuseppe Civati warned he may not endorse the prime minister-elect in a confidence vote expected in parliament later in the week.
The Financial Times (subscription) writes that some potential candidates for ministerial posts appear reluctant to commit themselves to another fragile left-right coalition coming to office without the legitimacy of a popular vote. Andrea Guerra, a Renzi supporter tipped as a possible minister of economic development, said he was happy to remain chief executive of his Luxottica eyewear company, while wishing the new government well. Alessandro Baricco, an internationally-acclaimed author and close friend of Renzi's, has rejected an offer to head the culture ministry. Lucrezia Reichlin, economics professor at the London Business School, and Lorenzo Bini-Smaghi, former board member of the European Central Bank, are reported to have expressed reluctance after being sounded out as potential finance ministers to replace Fabrizio Saccomanni.
If Renzi prefers a politician rather than another “technocrat” as finance minister then one contender being cited is Franco Bassanini, a former centre-left minister who is now chairman of Cassa Depositi e Presititi, a Treasury-controlled entity that funds public-sector investments and has grown into a holding company for quasi-privatisations of state assets.
Renzi declined to comment on the possible make-up of his cabinet, according to Reuters. "Our attention is on content and not other issues", he told reporters before returning to his home city of Florence, where he is expected to resign from his current post as mayor.
After concluding a round of talks with other party leaders, Italy’s Prime Minister-designate Matteo Renzi said on 19 February that he plans to present his cabinet on Saturday. The new government will then have to pass a confidence vote in both houses of the Italian parliament early next week.
See also Corriere Della Sera article: 50 Candidates for Renzi’s 12-strong Lean Team
Reforms
ABC reports that Renzi said he expected to lay out full reforms to Italy's electoral law and political institutions by the end of February, to be followed by labour reforms in March, an overhaul of the public administration in April and a tax reform in May.
According to Reuters, one area which European Union partners will be watching closely is budget policy[1], an area where Letta stuck to strict Brussels orthodoxy, squeezing the deficit within the 3 per cent of GDP ceiling. Renzi has said that Italy should be allowed to break the borrowing limits in exchange for structural reforms to encourage economic growth, an approach which could cause conflict with EU partners including Germany.
“Expectations of sweeping reforms should not be overstated", commented Wolfango Piccoli, managing director of the Teneo Intelligence advisory firm in the Financial Times (subscription). He said Renzi’s room for manoeuvre would be limited by being “stuck” with more or less the same fragile coalition as his predecessor; budgetary restraints, and opposition from “enemies” within his own party.
Tony Blair, the former UK prime minister whose shake-up of the Labour party has served as a model for Mr Renzi, disagreed. “The challenges are absolutely formidable but Matteo has the dynamism, creativity and toughness to succeed, with the combination of realism and idealism necessary for the times in which we live", Blair said, calling on Europe’s leaders to “get fully behind” Italy’s new leader.
Also in the Financial Times (subscription), Wolfgang Münchau says that Renzi will not be able to revive Italy with reforms alone; for the Italian economy to return to a sustainable path in the eurozone, Renzi will need to sort out the banks and stand up to his European partners. “Reforms, necessary as they may be, cannot do the heavy lifting all on their own. To keep Italy in the eurozone, Mr Renzi will also need help from the European Central Bank. And that means he needs to shift the macro-economic debate inside the EU. Four things must happen; not all of them are under Mr Renzi’s control. First, eurozone inflation must be prevented from persistently undershooting the inflation target, as it has been recently. Second, Italy needs lower market interest rates, which would require further unconventional policy measures. Third, shaky banks must be restructured and crumbling ones closed, and a “bad bank” set up to hold the debris. Fourth, massive current surpluses in Germany and the Netherlands will have to fall. These surpluses are making it extremely difficult and painful for the eurozone periphery to adjust. Mr Renzi should channel his rebellious spirit and make this case to his northern neighbours. His predecessors may have left it too late. The task may now be simply impossible.”
A poll published in the Italian daily Corriere Della Sera on Monday showed that 64 per cent of Italians oppose the change of leadership but 52 per cent of those surveyed believe a Renzi government can push through the reforms that the country needs.
Political volatility?
The resignation of Prime Minister Enrico Letta and his replacement by Democratic Party (PD) leader Matteo Renzi underscores the volatility of Italian politics, Fitch Ratings says. Renzi will be Italy's fourth prime minister since November 2011. Uncertainty about the durability of governments and their capacity for structural reform and fiscal consolidation is one reason for Fitch's Negative Outlook on Italy's 'BBB+' rating. Even if there is a quicker political reconfiguration than last spring, the new prime minister will probably face similar challenges to his predecessor in building and holding together a government that can agree and enact reforms that, Fitch believes, would boost Italian economic competitiveness and growth, and comply with EU and Italian fiscal rules.
A proposed law that would ensure the party that won a general election achieved a majority in the lower house while the upper house would be reconfigured to mostly deal with territorial matters, agreed in January by Renzi and Forza Italia leader Silvio Berlusconi, has been discussed in parliament. It is not clear what impact the latest events will have on its process through the legislature. Fitch believes that electoral reform would be credit positive if it resulted in a more stable political framework.
Brussels warns Renzi to stick to EU budget rules
The Financial Times (subscription) reports that Brussels has warned Rome it is unwilling to bend tough EU budget rules despite promises by incoming prime minister Matteo Renzi of a sweeping four-month reform programme aimed at reviving Italy’s moribund economy. The EU’s concern, conveyed diplomatically in public but more directly in private, is that Mr Renzi will use the reform mantle to breach a Brussels-mandated deficit limit of 3 per cent of economic output and to flout requirements to pay down Italy’s €2,000 billion public debt.
Pressed on whether Italy would be given any deficit leeway, VP Rehn said: “I trust Italy and the Italian authorities will continue to stay committed to the European treaties, and that covers the stability and growth pact", a reference to the EU’s tough budget rules. “We all know Italy has a very high level of public debt, and piling new debt on top of this old debt does not seem to improve the economic competitiveness of Italy", he added.
Expectations of a confrontation between Rome and Brussels were heightened on Tuesday by Antonio Tajani, Italy’s European commissioner, who said he would press Mr Rehn to allow Italy to breach EU budget commitments, noting that Germany and France broke the same rules in 2003. “Italy in 2014 has the same rights as Germany in 2003 and I will fight for this in the commission", Mr Tajani said, according to the Ansa news agency. “If Italy comes now with certain reforms and actions, then the same rules should be applied as with Germany in 2003 when they went over and made reforms.”
Jereon Dijsselbloem signalled he would back Mr Rehn in any showdown with Mr Renzi. Said another senior EU official: “The room to manoeuvre for Italy given its debt level is pretty negligible".
Peterson Institute's Jacob Funk Kirkegaard says it would be futile for Renzi to pick a political battle in Brussels against the obvious imperfections of the euro area institutional structure and the fiscal constraints imposed on Rome in the last few years... The advice to Renzi must therefore be to go all out for reform in Italy and ask Brussels for fiscal forgiveness later.
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