The deputy leader of Italy's centre-left Democratic Party, Enrico Letta, looks set to become the new premier in Italy. He will begin talks today to form a broad coalition with the centre-right People of Liberty party to which Silvio Berlusconi belongs.
In many ways Enrico Letta seems to be the optimal solution for Italy and if he succeeds in forming a broad coalition -- which seems likely -- it will be positive and support our positive view on Italian bonds.
Key Points
- Letta’s key strength is his fairly good relations with the centre-right party which gives hope that the broad coalition between the centre-left Democrats and the centre-right People of Liberty (Berlusconi’s party) can actually function.
- He belongs to the right wing of the Democratic Party. He began his political career in the Christian Democrats – the dominant post-war party that fell apart in the 1990s due to corruption scandals. After that he moved to the Catholic Margherita party that later merged with the left to form the Democratic Party in 2007.
- He is in favour of political and institutional reform in Italy. He has made it clear that he believes it is key that politicians regain credibility. His has said that politics has lost all credibility.
- Letta highlights the need for policies that create jobs and is in favour of easing austerity policies, joining current consensus that the austerity path has failed. Note that although Italy’s debt is high at 127% of GDP, the budget deficit is expected to be reduced to 2.6% by the IMF (updated last week). Hence it should not be necessary to continue the austerity measures to the same degree as over the past two years. According to the IMF, Italy reduced the primary structural balance (proxy for fiscal tightening) by 2.9 percentage points in 2012 – very significant tightening!
- He is critical of the way the EU has handled the euro crisis and says it’s time the EU changed its strategy.
Letta’s main challenge will be to balance the co-operation with the People of Liberty party who want tax cuts while also meeting opposition from the left-wing within his own party in favour of more spending. This will not be an easy task but he is probably the best candidate to do it.
He will also need to maintain good relations with the very popular mayor of Florence, Matteo Renzi, who was seen as the favourite to become Italy’s new premier. Finally Letta has to balance the co-operation with Germany but his diplomatic attitude should help him in this area as well as his background in the Italian Christian Democrats.
To Read the Entire Report Please Click on the pdf File Below.