In Italy, Former Enemies Map Out Many Priorities, Few Details

John Follain and Alessandro Speciale

(Bloomberg) -- In the southern Italian city of Naples this month, job seekers are taking a test to win one of about 2,200 coveted openings to work in the public administration of the Campania region.

The only problem is, more than 303,000 people are expected to sit for the exam, meaning fewer than one in 140 will attain one of these state positions, highly prized for the security they offer and generous pension benefits.

The mammoth turnout underscores the extraordinary challenges that confront Rome’s new government in kick-starting economic growth and creating jobs. It’s also evidence of how politicians have sidestepped Italy’s fundamental problems, which also include an aging population, a lack of financial and social mobility as well as widespread pessimism in a nation that has failed to grow significantly in more than two decades.

And even the newly minted government’s wide-ranging 29-point program faces a high hurdle, given that Prime Minister Giuseppe Conte’s supporting coalition is made up of two parties that were sworn enemies until last month.

“You can’t have 29 priorities, that’s just not credible,” Carlo Cottarelli, a former International Monetary Fund executive who nearly became premier himself, said in an interview.

Budget Dilemma

The new alliance between the establishment Democratic Party and the populist Five Star Movement is built on a central goal: to keep Matteo Salvini, head of the anti-migrant League party, from taking control of the government. And the inherent contradictions in the groups’ priorities will make addressing Italy’s most important issues, such as fixing an ailing economy and lowering the third-highest unemployment rate in the euro area, complicated.

“The government promises an expansionary economic policy, but that usually means a deficit increase so how will Italy, which already has so much debt, keep its accounts in order?” Cottarelli said.

One of the first tasks of Conte’s new administration -- and incoming Finance Minister Roberto Gualtieri -- will be to draft a budget that complies with the European Union’s strict deficit rules, and finds savings worth about 23 billion euros ($25 billion) in order to avoid an automatic sales tax hike. Conte has promised to do both, without giving details on how to reconcile these disparate goals.

Still, investors so far have cheered the new administration, if only because it has pushed back the risk of seeing an openly anti-European government led by Salvini. Yields on Italy’s debt have fallen to record lows and business leaders have signaled renewed optimism over the country’s outlook.

“We’ll have a government that is pro-euro,” Algebris Investments CEO Davide Serra said in an interview with Bloomberg from the Ambrosetti Forum in Cernobbio, Italy. “Confidence and investment will be up next year, and it’s positive for Italy.”

‘Lightweight Cabinet’

But beyond the immediate economic concerns, the country has other pressing issues to deal with. Migration, the dominant theme of Italian public debate over the past few years, is a case in point.

Salvini, whose bid for power spectacularly misfired and ushered in the current administration, has made his political fortune by vowing to curb illegal arrivals from the Mediterranean.

But the new government’s program, seen by Bloomberg, simply restates the migration position of previous administrations, calling for “a strong European response” to manage flows, and for reviewing the EU’s rules about asylum seekers. It says nothing on how to address an aging population and fostering integration of the millions that have already arrived.

The program also pledges to cut taxes on labor; to set a minimum wage; to review the EU’s fiscal rules; to cut the number of lawmakers; to boost infrastructure investments; and to start a state spending review. But the agenda is short on details of how such goals can be achieved.

“With the exception of Gualtieri, this is a lightweight cabinet with little mention of the structural reforms Italy needs,” said Lorenzo Codogno, LC Macro Advisers Ltd. founder and a former chief economist at the Rome Treasury. “Expansionary policies can have no effect on growth, the priority should be to increase productivity and growth on a structural basis.”

To contact the reporters on this story: John Follain in Rome at jfollain2@bloomberg.net;Alessandro Speciale in Rome at aspeciale@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Richard Bravo, Raymond Colitt

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