Italy's Renzi aims to lay down marker with justice, school reform

ROME Thu Aug 28, 2014 6:51am EDT

Italy's Prime Minister Matteo Renzi meets with Iraq's Prime Minister-designate Haider al-Abadi in Baghdad August 20, 2014. REUTERS/Mahmoud Raouf Mahmoud

Italy's Prime Minister Matteo Renzi meets with Iraq's Prime Minister-designate Haider al-Abadi in Baghdad August 20, 2014.

Credit: Reuters/Mahmoud Raouf Mahmoud

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ROME (Reuters) - Prime Minister Matteo Renzi returned from holiday this week with his customary vim, tweeting that he was back at work on a new plan to speed up Italy's sluggish justice system, reform its schools and spur investment.

With Italy in recession for the third time in six years, Renzi badly needs to restore waning international confidence and show that he can finally come good on his repeated pledges to revive the eurozone's third-largest economy.

The package of measures to be announced on Friday does not directly address the most visible problems like record youth unemployment or the huge public debt, but officials say it is aimed at shoring up some of the weakest points in Italy's overall economic foundations.

"Our main structural deficits involve the justice system, the education system and everyday bureaucracy, so these are the areas that will be addressed," said Filippo Taddei, a senior economic policy expert in Renzi's center-left Democratic Party.

Italy's slow, cumbersome, expensive and unpredictable justice system, has long been singled out as one of the biggest hurdles to attracting international investment, despite repeated attempts at reform by previous governments.

The World Bank's 2014 Doing Business survey ranked Italy 103rd out of 189 on the ease of enforcing contracts, with a company requiring an average of 1,185 days and 37 separate procedures that eat up 23 percent of the value of a claim.

The reform aims to halve the 5.2 million-strong backlog of outstanding cases and reduce the length of trials as well as beef up penalties for money laundering and fraud offences.

Education, the other main project, has proven just as problematic, in spite of a series of past reforms.

Italy, which spends just 4.3 percent of its gross domestic product on education, less than any other country in the eurozone, has long struggled to produce the kind of qualified workforce capable of prospering in a globalized economy.

Despite some marked improvements in recent years, Italian students still lag their peers in other countries in maths, science and reading, according to rankings by the 34-member Organization for Economic Cooperation and Development.

The main thrust of the reform is expected to concentrate on reducing the army of temporary supply teachers which Italy's 41,000 schools depend on. But as with other measures, the package has been held up by uncertainty over financial cover.

Together with a broader set of measures meant to encourage investment in public infrastructure, dubbed "Unblock Italy", officials hope the package will address chronic weaknesses of the economy without imposing a heavy strain on public finances.

"Renzi will announce measures that are useful but don't require new financial resources," Taddei told Reuters.

CASH-STRAPPED

Renzi's record on implementing reforms has come under scrutiny since he took office in February, with European Central Bank President Mario Draghi remarking pointedly this month that a lack of progress was hampering a return to growth in Italy.

Business confidence data released on Thursday showed a slump to a 12-month low in August, underlining the extent to which Draghi's misgivings are shared by Italian firms.

The long-term measures expected on Friday will not produce the kind of jolt capable of lifting the economy out of recession immediately, but they are nonetheless important as signals that the 1,000-day reform process Renzi has promised is on track.

Although Renzi has said repeatedly that Italy will keep its budget deficit under the European Union's ceiling of 3 percent of GDP, his margin for maneuver is being increasingly squeezed.

Comments by Draghi on fiscal policy last week, widely taken as a signal the ECB may be more receptive to calls for a turn away from budget austerity, offer Italy some encouragement. But EU partners, who meet in Brussels on Saturday, will only be persuaded if there are clear signs that Renzi can deliver.

He has already run into opposition, with center-right partners in his coalition objecting to key parts of the justice reform. He is also likely to struggle to pay for urgently needed change, with both courts and schools suffering from a chronic lack of investment that has worsened in the past six years.

That will feed into the next challenge on the government's agenda, planning the 2015 budget, which is due in October and where it will have to find some 15 billion euros ($19.8 billion) in spending cuts to keep the deficit under control.

"That is the big challenge," Taddei said. "All recent Italian governments have tried to do a spending review but they have always failed at the last mile because they haven't been willing to pay the political price. Now I think we have someone who is willing to pay the political price."

(Editing by Crispian Balmer)

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