Over the centuries, many countries have taken their turn being labeled “the sick man of Europe.” If any place deserves the title today, it would be Italy. On a continent where many economies are ailing, Italy uniquely combines size (the third-largest gross domestic product of the 18 members of the euro currency) with dysfunction (negative growth of 7 percent in the past five years, 12.7 percent unemployment, a national debt 30 percent larger than its annual economic output). Italy’s economic woes are tied to a deep political malaise rooted in a tangled history of corruption, bureaucracy and factionalism.
It is increasingly evident that austerity, though necessary to stabilize Italy’s short-run finances, cannot salvage its economy. If the country is to shrink its debt and provide a decent future for its people, it needs rekindled growth. And growth requires reform, both economic and political — because growth-killing bureaucracy, regulations and tax policies are the products of Italy’s broken political system.
Which brings us to the news that Matteo Renzi, the 39-year-old mayor of Florence, is poised to take over as prime minister in what amounts to a parliamentary coup against the incumbent, Enrico Letta. Though Letta, like Renzi, is a member of the Democratic Party, Renzi has made himself one of Italy’s most popular politicians, in part, lately, by criticizing Letta’s failure to enact significant structural reforms.
Those reforms need to be “radical,” Renzi accurately says. Among his suggestions are cutting payroll and business taxes, which eat up the majority of the corporate sector’s gross earnings, and replacing strict controls on hiring and firing with a more flexible unemployment-insurance program. He also wants political reforms to reduce the clout of Italy’s small parties and the size of its bloated, nearly 1,000-member Parliament.
Renzi would hardly be the first Italian politician to ride into office on a promise of sweeping reform — only to succumb to the country’s entrenched habits and special interests. Still, austerity is yielding diminishing returns, while desperation is driving more Italians to understand that change, even painful change, is necessary. If the government finally does manage to pass structural reforms, the impact on Italy, and Europe, could be historic — and worthy of full support from the rest of Europe and the United States.