Matteo Renzi’s Liberalism of the Left

Italian Prime Minister Matteo Renzi delivered his ‘Manifesto for 2016’ in a long speech to the parliamentary factions of the Partito Democratico on 3 November 2015. Il Foglio published an editorial on the manifesto some days later alongside a full text version of the speech. The paper also invited a few reactions from outside observers. The English-language version of my comment is below. The Italian-language version was published in Il Foglio this morning (10 November).

Four things jump out of Renzi’s speech on the ‘legge di stabilità-fiducia’ – his analysis of Italy’s challenge in the crisis, his assessment of the European center-left, his defense of the plan to cut taxes on primary residences, and his recognition that the north-south problem remains a central concern.

Renzi’s assessment of the crisis is striking: Renzi calls it 50 percent reform, 50 percent self-confidence. That is probably not far off the mark. The part I would underscore is the importance of self-confidence in Italy to retaining the confidence of the international investment community. Here it is useful to recall that the Italian crisis began in earnest only in June 2011. Italians were suffering economically prior to that, and yet foreign investors remained engaged in holding up the government’s sovereign debt markets. That all changed suddenly and Silvio Berlusconi’s center-right coalition failed to mount an effective response. Worse, infighting between Berlusconi and his finance Minister, Giulio Tremonti, made it hard for market participants outside Italy to find any basis for renewed confidence. Even the appointment of Mario Monti’s government was not enough to shore up the markets. Only decisive action by the Mario Draghi at the European Central Bank (ECB) made a difference. The question is whether Italy is better able to stand on its own two feet. Successful reform is only part of the calculus; effective leadership and durable coalition-building is also important. Renzi’s ability to survive repeated challenges to his leadership has laid the foundations for his own success in that respect.

Certainly Renzi’s fortunes contrast sharply with the center-left in other countries. The examples of Central and Eastern Europe are deeply troubling; the left barely exists in Hungary and Poland and is largely unrecognizable elsewhere – particularly when faced with the sudden influx of refugees and migrants from outside Europe. But it is the left in Western Europe that is more troubling. The reason is not the lack of visibility but rather the lack of coherent ideas. This is where Renzi’s assessment of the crisis takes on a different significance. Some years ago, Alberto Alesina and Francesco Giavazzi made the argument that liberalism is a left-wing political program. They may not agree with my assessment, but it seems that Renzi has embraced this notion more coherently than his counterparts in other countries. He has also combined it more effectively with a willingness to stand up to inflexible European rules. Again, it is a combination of reform and self-confidence that seems to work.

Not all aspects of Renzi’s program are equally attractive. I don’t want to enter too deeply into the debate about the plan to cut taxes on primary residences. Renzi offers a spirited defense of the policy but he never subjects that defense to the obvious challenge. Could you cut taxes by the same amount in straight money terms and get a more positive economic benefit both in terms of market efficiency and economic stimulus? I think the answer is ‘yes’; just take a look at Italian payroll taxes.

At the same time Renzi recognizes that the elephant in the room is the North-South dimension. Southern Italy has suffered more during the crisis and it is also going to emerge more slowly. Neither the general terms of the program nor the specific investment packages outlined in point 21 are going to make much of a dent in that problem. The question is whether Renzi and his coalition can rescale policies designed to improve the situation of Italy within Europe to match the situation of the mezzogiorno within Italy. Liberalization and reform will be half the battle; promoting self-confidence and ownership will be the other half.