Italy has pushed through a package of support measures for the economy that offers some help to businesses, but pressure is rising on Prime Minister Matteo Renzi to take more significant steps to pull the country out of recession.
Among the more significant measures in the package, approved by Parliament late on Thursday, are a reduction in energy costs for small- and medium-sized companies, a tax credit for firms that make new investments in machinery and new rules allowing insurers and credit funds to lend directly to business.
Minor measures affecting areas from agriculture to the environment were also included.
The plan, dubbed the ‘competitiveness decree’ when it was presented by Renzi in June, has got a lukewarm reception from business leaders who said it lacked a clear strategy and failed to address the real needs of industry.
Data this week showed the eurozone’s third-biggest economy unexpectedly fell back into recession in the second quarter, contracting for the 11th time in the past 12 quarters.
I promised to change direction, not to change the universe in three months’ time
On Thursday, European Central Bank president Mario Draghi, in unusually direct comments, said Italy had not done enough to reform its labour market, bureaucracy or judicial system, resulting in an unfavourable climate for investment.
The economy is now expected to post little or no growth this year, compared with the government’s official forecast in April of a 0.8 per cent expansion, creating negative repercussions for Italy’s strained public finances.
Renzi said he agreed with the ECB chief’s comments and they were not a criticism of his government. In a television interview on Thursday he insisted his economic strategy was sound and would eventually lift the country out of crisis.
“We will work better and harder, but I promised to change direction, not to change the universe in three months’ time,” Renzi said, adding that only a “comic book superhero” could turn around the economy in a matter of months.
“Calmly, serenely, we are taking this country by the hand and pulling it out of the crisis,” said Renzi, who has promised to turn the economy around with a comprehensive strategy over the next 1,000 days.
Analysts are increasingly questioning whether Italy can really afford such a gradualist approach.
Riccardo Barbieri, chief European economist at Mizuho, said in a research note yesterday that Renzi’s honeymoon is over. He forecast the economy would shrink by 0.2 per cent this year and urged a rethink of Renzi’s reform agenda in the report titled ‘Italy cannot wait 1,000 days’.
The latest support package underwent numerous changes during a difficult passage through parliament and finally secured 155 votes to 27 against in a confidence vote in the senate as the government tries to rush through legislation before the summer recess.
Prominent industrialist Alberto Bombassei, chairman of brake-maker Brembo, said the competitiveness decree had too many minor measures and was of no help to business which would benefit far more from a reduction in corporate tax rates.
“It seems a clear sign that the government has lost its direction at the moment,” he said in an interview in La Stampa daily.
Renzi’s main economic stimulus approved so far has been an income tax cut of up to €80 per month for low earners, effective from May, while plans for a broad reform of rigid labour market rules have been put back to 2015 at the earliest.
The Prime Minister, who took office in February, is facing criticism for focusing more on long-term institutional reforms than urgent economic measures as concerns grow that Italy’s economic weakness and huge debt are a threat to the broader eurozone.
The Senate was due to give its first approval to Renzi’s plans yesterday to abolish the Senate as an elected chamber, the first significant step in its passage through Parliament, which will take many months and may require a popular referendum to become law.