Newly-elected Prime Minister Enrico Letta and his government have the confidence of Italy's parliament. But they should not expect concessions from Berlin, says DW editor Bernd Riegert.
Bernd Riegert, editor of DW's Europe department
Italy, once again, has a government. In two votes of confidence, both chambers of the Italian parliament have approved the cabinet of Prime Minister Enrico Letta. That is good news. Financial markets reacted positively, rewarding the man at the helm of Italy's grand coalition with a vote of confidence of their own. Interest rates on long-term Italian bonds have enjoyed a drop, at least for now. After six months of political deadlock following the resignation of technocrat Mario Monti, Italy, once more, is on the move.
Enrico Letta, however, will not have much time to put his reforms in place. The marriage of social democrats and conservative members of Silvio Berlusconi's party was a forced one, and the coalition government it has given birth to will likely have a life expectancy of no more than 12 to 18 months. Letta himself has announced that, after 18 months, he will have results to show. Chief among parliament's tasks are the reforms of complicated election laws, so that in the event of a new election a stable majority can be created, avoiding a re-run of the political stalemate of the last twelve months.
Economic realities will force Letta and his team to continue implementing the reforms begun by Letta's predecessor, Mario Monti. Italy's debts are too high, its products too expensive and, by international measures, it simply isn't competitive enough. Unlike Greece, Italy has a significant industrial base, which manufactures ready-to-export goods and is ripe for further investment. Improved conditions for investment, along with reform of the labor laws, will put the country back on a path to growth. Only then can an unemployment level which is far too high be brought back down. Short-term stimulus financed with credit would accomplish no such thing over the long term.
If Prime Minister Letta believes that Italy is dying because it is "saving itself to death," then he should also clarify what the alternatives look like. And in that respect, he is guilty of failing to provide concrete answers. Even if all the parties' campaigns during the election presented it as such, Germany and the reform proposals from Brussels are not responsible for the country's misery. During his first visit to Berlin as prime minister of Italy, Letta will receive sympathy from German Chancellor Angela Merkel with regard to his country's precarious position, but there won't be any significant changes in policy.
Merkel's mission statement reads: savings and growth. But the Italian prime minister has little room for movement at home, where his coalition partner Berlusconi considers "Il Spread," or the risk premium on Italian bonds, to be a German invention. The opposition leader, Beppe Grillo, also places the blame on Germany for the pain of austerity policies - and then goes one step further in demanding Italy's withdrawal from the eurozone. Letta will have to cope with such absurd arguments.
By eliminating property taxes, Letta is fulfilling one of the electoral promises made by Berlusconi's party. The cost for the Italian government will be heavy - around four to eight billion euros ($5.2 to 10.5 billion) per year. How that financial hole will be filled remains a mystery. New debt seems unlikely, since Italy's national debt has already reached 130 percent of GDP. Letta has little hope of more help from Berlin in the form of cheap loans, Eurobonds or the assumption of Italian debts by Europe as a whole. Chancellor Merkel has her own set of parliamentary elections ahead of her in September. Little will change until then.
At home, Enrico Letta will have to fight against the disillusion with politics of his own Italian compatriots. The "Grillinis," or followers of opposition leader Grillo's Five Star Movement, have dug themselves in and patently refuse to have anything to do with any of the "old" Italian parties. It was their stubborn determination that forced the traditional enemies of the Italian left and right to form a working government. Grillo is determined to obtain an electoral majority in the next Italian election and, once and for all, to sweep away the old political system.
Enrico Letta, meanwhile, must succeed in turning Italy on to a new course while simultaneously delivering a sense of hope to the disappointed and frustrated citizens of his country - particularly the unemployed and university graduates. Otherwise Italy will not "die from saving" but could perish due to the dysfunctions of its own political class.