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Italy clouds mar Renzi's second anniversary
Renzi insists he is a Euro enthusiast but he often sounds like a sceptic. Photo: Andreas Solaro/AFP

Italy clouds mar Renzi's second anniversary

AFP · 21 Feb 2016, 13:09

Published: 21 Feb 2016 13:09 GMT+01:00

As Renzi sees it and tells it, an Italy that was on the ropes when he took office is now bulking up economically, feeling better about itself and starting to punch its weight on the European and international stage.

Few observers would contest that the country is in better shape now than it was two years ago.

What they don't agree on is how much of the credit Renzi, a self-styled reforming "bulldozer", can take for that.

Also up for debate is how much longer the brighter days will last as the related problems of mass migrant arrivals from Libya and the chronic instability of Rome's former colony loom on the horizon.

- Jobs expansion -

The economy has pulled out of recession on Renzi's watch and unemployment has fallen. According to the premier, the 764,000 permanent new jobs created last year were proof labour market reforms enshrined in his 2014 Jobs Act are bearing fruit.

But growth slowed to a virtual standstill in the last quarter of 2015 and sceptics say cheap money, cheap oil and a weak euro have been bigger factors in the jobs improvement.

Whatever the truth, the slowdown is threatening to derail the government's delicate balancing act between pro-growth tax cuts and investment and its commitment to trimming the country's €2.2 trillion debt.

That in turn has set the stage for an intensification of the skirmishes with Brussels and Italy's EU partners that have become an increasingly prominent feature of Renzi's administration and, some say, could cost Rome influence not gain it.

Renzi insists he is a Euro enthusiast but he often sounds like a sceptic.

He has tussled with France over temporary border closures linked to migrant flows, Germany over a major gas pipeline project and fought the European Commission over the consolidation of bad debts by Italy's banks as well as budget issues.

- Migrant crisis deepening -

None of those problems are going away anytime soon. On top of the gloomy macro economic outlook, there is a perception that Italy's banks are vulnerable to a new financial crisis.

Austria's intention to temporarily close its borders has intensified fears Italy could soon be forced to permanently accommodate a much bigger proportion of the migrants who have been arriving in Italy at a rate of more than 3,000 people a week for over two years now.

And that is not the biggest Libya headache Renzi faces. Last week's US airstrikes against Islamic State targets in Libya again highlighted concern over the threat of the extremist group using the lawless north African state as a launchpad for attacks on Europe with Italy on the frontline.

Rome has made plans to lead a stabilisation force into Libya but for that to happen Libya must first form a government with the authority to ask for security help - still a remote prospect at the moment.

German Chancellor Angela Merkel initially greeted Renzi as a welcome new broom in the eurozone's third largest economy. But officials say her patience is beginning to wear thin.

"Renzi is always playing his anti-Merkel theatre," an EU diplomat told AFP. "It's just theatre, but it gets in the way of policy at times.

"In the old days when their economy was struggling the country could just devalue. Now they have to reform, that is frustrating and they respond with theatre."

- 'Important structural change' -

Story continues below…

Economists are less harsh on Renzi, insisting that his Jobs Act and reforms designed to streamline parliamentary decision-making are landmark changes for Italy which will eventually bear fruit.

Lorenzo Codogno of LC Macro Advisors said the Jobs Act "is a very important structural change in the labour market, which is probably still underrated even in Italy.

"What needs to be done in the future remains daunting. Renzi has the courage and the energy but we have seen that, on some occasions, he has been keener to maintain consensus than to deliver what was needed."

Specific criticisms levied at Renzi include a degree of cronyism in filling public jobs, backing off politically difficult spending cuts and failing to address a competitiveness shortfall which limits the country's potential.

"Italy is now competitive enough to sustain moderate growth in the absence of serious external shocks," said Holger Schmieding, chief economist at private bank Berenberg.

"But to get beyond growth rates above 1 percent, it needs further reforms, most importantly deregulation and a further major streamlining of judicial procedures."

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