Are Renzi’s reforms running out of steam?
No major surprises in Italy’s Economic and Financial Document (DEF): budget projections are broadly in line with previous targets and are credible. Still, the improved economic outlook and lower interest expenditure are not used to improve budget achievements but rather to ease projected spending cuts. The limited progress on structural spending cuts decreases the leeway for tax reductions and/or additional costly reform initiatives.
In fact, some key initiatives are still missing: further improving the business environment and ways to support credit expansion and alleviate extreme poverty and long-term unemployment. Despite the reformist stance of the government, a big shake up of the incentive structure in the economy has yet to come. More needs to be done to change the long-term economic outlook.
The most difficult bit remains the slow (and poor quality) law making/regulatory activity and the implementation on the ground of reforms (and especially the labour market one). Reshuffling public services, and in general reforming the public administration, remains key to structurally lower current expenditure.
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