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The Brave Reformer



Facing -2.1% GDP quarterly growth rate and 12.5% unemployment, Prime Minister Enrico Letta’s problems continue. His government recently passed a new budget that reduced fiscal austerity and increased state spending. His next target is Italy’s constitution, a document that established Italy’s bloated bureaucratic public sector which continues to drain resources from the nation’s coffers. While political waters remain treacherous due to the coalition’s fragility and the power of labor unions, feeble signs of economic recovery have begun to appear since the economy hit a trough in the fourth quarter of 2012. There is a glimmer of hope that Italy’s much-needed and long-delayed constitutional reforms will finally become reality.

Letta has two main goals: first, abolish Italy’s provinces; second, to change the structure of parliament.

Italy has three levels of administrative divisions: twenty regions, divided into 110 provinces, divided into over a thousand municipalities. Since Italy is a unitary state, the powers devolved to each level are limited and ultimate legislative power resides at the parliament in Rome. According to the International Monetary Fund, Italy’s public debt is 126% of GDP, meaning that the debt is more than double the size of the nation’s total output. Much of the expenditure comes from a bloated and inefficient public sector. Estimates from Lettera 43, an independent news magazine, show that abolishing the provinces would save €9 billion a year. Mario Monti, Letta’s predecessor, and his technocratic government have already attempted to restructure the provinces through a bill in parliament, but this was rejected by the constitutional court, leading to Letta’s effort to push for a constitutional amendment today.

State expenditure on provincial leaders, deputies, and politicians, drains the budget and is symptomatic of Italy’s traditional problem of an extensive and wildly expensive bureaucracy, vestiges of Mussolini’s Fascist regime. Today’s economic horror stories reported by the Italian press include the province of Catania, in Sicily, where average winter temperatures are around 50°F, employing 300 snow plowers, or the indebted region of Calabria, which is 5,820 square miles large, hiring 30,000 forest guards.

The major barrier to reforms are the all-powerful unions, namely the hard-left CGIL (Italian General Confederation of Labour), who oppose the effort to reform the constitution on the grounds that hundreds of thousands of administrators, representatives, and other public sector workers will lose their jobs if provinces are done away with.

This is not surprising, as in 2010, the Berlusconi government closed several mines in Sardinia, citing rising costs and decreasing competitiveness of the mines. The workers were given unemployment benefits equal to their monthly wages for two years. In 2012, at the conclusion of the two years of benefits, virtually none of the miners had found new employment. Simply giving benefits did not pay off, and the problem was not resolved.

While reforms would undoubtedly reduce state spending, they would also cripple a large section of Italy’s working population, causing unemployment to rise. However, similar fears emerged in Great Britain in 1984 following Margaret Thatcher’s wave of mine closures despite virulent opposition from the miners’ unions. In response, she set up a government agency to help bring job opportunities to former mining areas, which by 1996 had created 131,000 jobs, well over the initial estimate of unemployment resulting from the mine closures. This approach, rather than the one Italy tried with its own miners, could be far more effective in re-employing the provincial representatives.

The second target of Letta’s plan is Italy’s parliament, which is composed of a 630-member Chamber of Deputies and a 315-member Senate, akin to the United States’ Congress. Power is shared equally between the two chambers, and any bill must be ultimately signed into law by the Prime Minister, a system of perfect bicameralism.

Italy has faced a chronic problem: after elections, political parties wrangle for months over forming a coalition. When this finally occurs, new governments find it difficult to pass laws dependent on shaky alliances that could imminently collapse in one chamber or the other, killing their legislation. Italy has a woeful record of never having had a government see out its full five-year term ever since the republic was established in 1946. This year, for example, it took two months after elections in February for the current coalition to form. Another complaint is that having 945 representatives for a population of 60 million is a waste of public funds, especially considering the generously extensive benefits given to them and their subordinates.

Prime Minister Letta has tasked a group of legal and political experts with designing the reform to perfect bicameralism. They have taken inspiration from Germany’s upper house, the Bundestag, which has far fewer members than the lower house, is politically weaker in terms of being able to enact legislation, and is composed of representatives of Germany’s sixteen federal states. A weaker and smaller senate composed of regional representatives would reduce the chances of gridlock and also devolve more power to the regions, a key demand of the Northern League, one of three main opposition parties.

While still in recession, new data from the third quarter of 2013 indicates that Italy’s economy is slowly recovering, registering a low 0.8% inflation rate and stabilizing a rise in industrial production. In order to continue the trend and enter a full-fledged recovery, Mr. Letta has stressed the vital importance of his reforms. But even while Letta pushes for change, Italy’s shaky coalition government of the center-left Democratic Party (PD) and the center-right People of Freedom (PdL), erstwhile political adversaries, has just emerged from potential collapse. Former Prime Minister Silvio Berlusconi had forced a vote in parliament to remove confidence in the coalition and precipitate fresh elections. Though his efforts were soundly defeated, it remains to be seen how far Letta can take his reforms.

This article originally appeared in the Winter 2013 print edition, which can be found here.

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