After two months of political gridlock, Italy finally has a new prime minister who will try to cobble together a coalition government with the primary goal of lifting the euro zone’s third largest economy out of debilitating recession.
Italy’s president, Giorgio Napolitano, who was urged over the weekend to renew his seven-year term as head of state, nominated Enrico Letta, the deputy leader of the centre-right New Democratic party (PD), to make peace among the leading parties.
Mr. Letta was a surprise candidate. His name emerged as the leading contender only within the last 24 hours. His appointment is significant because, at 46, he is exceeding young by Italian political standards, a signal that Mr. Napolitano felt the need for youthful political rejuvenation. He becomes the second youngest Italian prime minister in history, and the first born in the 1960s.
Mr. Letta is also clearly a politician, not a technocrat like caretaker prime minister Mario Monti, who has never held elected office. He was the right hand of Pier Luigi Bersani, who recently resigned as the PD’s party leader after all his efforts to form a government since the inconclusive February election came to nothing.
In a short press conference at the presidential palace in Rome, Mr. Letta called for immediate economic reforms that would help to end the recession and make Italy more competitive. The country has had essentially zero growth in the last decade and its jobless rate is soaring as manufacturing jobs vanish at an alarming rate.
“Europe’s policy of austerity is no longer sufficient,” he said.
Whether his comment means the new government will roll-back austerity measures put in place by Mr. Monti’s “Save Italy” campaign, launched in the autumn of 2011, after he replaced Silvio Berlusconi, is an open question. It may simply mean that the new government will attempt to offset austerity’s growth-dampening effects with reforms, such as marketplace liberalization, that would create jobs.
Investors cheered the end of Italy’s political stalemate. Italian bond yields fell in recent days on the expectation that a new government would be formed. The yield on 10-year bonds is now just under 4 per cent, a big fall from the 7 per cent level at the height of the debt crisis.
An auction today confirmed that Italian borrowing costs were on the way down, much to the relief of the treasury, which is grappling with funding the euro zone’s biggest debt load. The treasury sold €2.5-billion ($3.2-billion U.S.) of two-year bonds with a 1.17 per cent yield, far below the 1.75 per cent it paid at a similar auction last month.
Mr. Letta will try to forge a coalition between the PD, which won enough votes to take the lower house of parliament in the election but not the senate, the upper house, and Mr. Berlusconi’s People of Liberty party (PdL). There is no guarantee of a successful result, meaning another election this year is probable.
The electoral success of Beppe Grillo’s Five Star Movement (M5S), which has refused to join any potential coalition, will make any effort to form a government even more difficult. M5S took 25 per cent of the vote in the election, campaigning on an anti-corruption, anti-establishment and anti-austerity platform.
Mr. Berlusconi will lay out strict conditions for his support, including the repeal of the highly unpopular housing tax imposed last year as part of Mr. Monti’s austerity campaign. But Mr. Berlusconi produced no credible plan to replace the lost property-tax income.
Mr. Letta said he felt “a deep sense of responsibility ... heavier than what my shoulders can bear. I take on this commitment with great determination, as I think that this country needs answers to this enormous and unbearable emergency.”