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Defiant Italy PM: ‘Time will show who is right’

Rachel Sanderson and Giulia Segreti

Matteo Renzi, Italy's 39-year-old prime minister, brandishes a rapier at the start of his interview with the Financial Times. It is a gift, he explains, from Italy's world championship-winning fencing team. The flourish from the media-savvy politician also sends a clear message.

At the end of a week in which Italy returned to recession and European Central Bank president Mario Draghi implied Italy needed to implement more structural reform, the former mayor of Florence is coming out fighting.

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"Time will show who is right," he says, sitting at his desk in Palazzo Chigi after spending several minutes clearing it of two iPads, an iPhone, pens, pencils, a stapler and papers full of charts.

"I intend to hand this country over to who comes after me in good order. Time will show whether this is arrogance or courage. On my part, I'm not going to budge one inch and I will go ahead".

Mr Renzi came to power in February promising sweeping reform to wake up Italy's economy from a decade of zero nominal growth. In May, his Democratic party won an unprecedented 40 per cent of the Italian vote in the European elections.

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"I don't believe there is another leader in Europe who can say they have as many votes as the Democratic party in Italy, no one . . . [not] even Angela Merkel," he says as he defends his reform strategy while Italy's economy wilts.

Data last week showed Italy's economy dipped back into recession in the second quarter for the third time since 2008.

Mr Renzi maintains Italy will see signs of economic improvement in 2015. He bats away suggestions that he was mistaken to focus on an overhaul of the Senate, where he won first approval for a crucial overhaul of Italy's two-chamber system last week, above structural reforms of Italy's sclerotic labour laws.

Responding to Mr Draghi's suggestion that countries with low or zero growth, like Italy, should follow the example of countries that have undertaken tough structural reforms, like Spain, he replies, drily: "Our model is not Spain, but Germany".

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Mr Renzi reflects on the scale of his ambition to update a country riven by vested interests where little change has happened for 20 years or more.

"I'm on the telephone with the Senate, with the tax authorities, with the judiciary and I'm asking them to go faster [with reforms] and they are saying to me "no one in Italy has ever gone this fast". And then I go to the [foreign] investors and they ask me to go even faster," Mr Renzi says.

"I've been prime minister for five months. In those five months we have made a constitutional reform that no one has done in 70 years. What we have done isn't sufficient, we need to do more."

A decree to reform Italy's labyrinthine civil justice system with the aim of slashing two-thirds of the time taken to get civil cases decided – a bugbear of foreign investors – will be presented on August 29, he says. In a break with the past, Mr Renzi's team are working through most of August to get through the workload.

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Mr Renzi also wants to make paying taxes easier and has embarked on a €20bn package of tax cuts by 2018, worth about 2 per cent of GDP, starting with a measure to put €80 a month into the pay packets of low income earners to be paid for by public spending cuts.

He denies that Italy's debt pile of 132 per cent of GDP in Italy's zero growth, low inflation environment risks a "snowball" effect where the country starts to have a problem repaying its interest but concedes Italy's privatisation programme is on hold until it is "credible".

Italy's business leaders, desperate for reform, have been big supporters of Mr Renzi, noting his energy and determination. But they have voiced fears that he is a micromanager who relies too much on a few trusted friends when he needs experienced advisers to match his political ability. Mr Renzi's jaw tightens – for the only time in the interview – when asked about the quality of his team.

Mr Renzi denies reports of a falling out with the independent spending review tsar Carlo Cottarelli – but indicates he intends to take control of the spending cuts himself. "It's Renzi who is going to decide where we are making cuts . . . not a technocrat," he says, referring to himself in the third person.

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"Rome is a city full of lobbyists. Italy is used to relationship capitalism. I'm not part of that system that has destroyed this country," he says. "I'm alone with the 40 per cent of the Italians who voted for me, with the 11m Italians who voted for my party, and only with these and with my team, will this country change."

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