* Senate vote ends parliamentary battle for now
* Renzi under pressure to act after Italy fell into
* Business leaders say economic steps don't go far enough
* Renzi defends strategy after Draghi criticism
(Releads with Senate vote)
By Gavin Jones and James Mackenzie
ROME, Aug 8 Italy's Senate passed a first
reading of a hotly contested constitutional reform bill on
Friday, drawing a line under a parliamentary battle that has
absorbed government attention as pressure grows for faster
action on the economic crisis.
The bill, aimed at transforming the upper house into an
unelected body and drastically reducing its legislative powers,
requires many more months and perhaps a popular referendum in
order to become law.
Prime Minister Matteo Renzi says the Senate overhaul - aimed
at ending the kind of parliamentary stalemate left after a
deadlocked election last year - is necessary to enable any
government to push through effective reforms.
The fact the bill has cleared its first hurdle in parliament
after weeks of bitter resistance from opposition parties will
free him to respond to mounting calls for economic reform.
Data this week showed the euro zone's No. 3 economy
unexpectedly fell back into recession in the second quarter,
contracting for the 11th time in the past 12 quarters and laying
bare the scale of the challenge facing the government.
On Thursday, European Central Bank President Mario Draghi,
in unusually direct comments, said Italy had not done enough to
reform its labour market, bureaucracy or judicial system,
resulting in an unfavourable climate for investment.
The economy is now expected to post little or no growth this
year, compared with the government's official forecast in April
of a 0.8 percent expansion, offering no hope to the millions of
unemployed Italians and creating negative repercussions for
strained public finances.
Renzi came to office in February promising swift and
comprehensive action to pull Italy out of a slump that has
lasted more than a decade. However, progress has been slow and
his signature achievement so far remains an 80
euro-($107)-a-month tax break for low earners. Plans for a broad
reform of rigid labour market rules have been put back to 2015
at the earliest.
Renzi said he agreed with Draghi's comments and they were
not a criticism of his government. In a television interview on
Thursday he insisted his economic strategy was sound and would
eventually lift Italy out of crisis.
"Calmly, serenely, we are taking this country by the hand
and pulling it out of the crisis," said Renzi, who has promised
to turn the economy around with a comprehensive strategy over
the next 1,000 days.
LACK OF URGENCY
Analysts are increasingly questioning whether Italy can
afford such a gradualist approach, echoing calls from opposition
parties for a switch in focus from long-term constitutional
reforms to the immediate problems of the economy.
Financial markets, calmed for months by Draghi's pledge to
protect the euro, have been increasingly twitchy, with the risk
premium on Italy's 10-year government bonds widening by more
than 20 basis points over their safer German counterparts since
the start of the week.
Riccardo Barbieri, chief European economist at Mizuho, said
in a research note on Friday that Renzi's honeymoon is over. He
forecast the economy would shrink by 0.2 percent this year and
urged a re-think of Renzi's reform agenda in the report titled
"Italy cannot wait 1,000 days."
The long battle over the bill in parliament, which saw
nearly 8,000 amendments tabled by opposition parties amid
furious shouting matches, risked bogging down the government and
holding up any drive on economic reform even longer.
On Thursday, parliament approved a package of incremental
economic measures aimed at helping business, but none amounted
to the kind of wide-ranging attack on structural obstacles
likely to spark a turnaround.
They include a reduction in energy costs for small and
medium-sized companies, a tax credit for firms that make new
investments in machinery and new rules allowing insurers and
credit funds to lend directly to business.
The plan, dubbed the "competitiveness decree" when it was
presented by Renzi in June, has got a lukewarm reception from
business leaders who said it lacked a clear strategy and failed
to address the real needs of industry.
Prominent industrialist Alberto Bombassei, chairman of
brake-maker Brembo, said the competitiveness decree
had too many minor measures and was of no help to business which
would benefit far more from a reduction in corporate tax rates.
"It seems a clear sign that the government has lost its
direction at the moment," he said in an interview in La Stampa
newspaper on Friday.
(Editing by Louise Ireland)