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| Matteo Renzi (Italy) and Manuel Valls (France) |
In the the smouldering economic landscape of the euro zone, the future
is riding on two men. In France Manuel Valls , is
leading the most reformist government in years.
In Italy, whose economy is in even worse shape than France’s, Matteo
Renzi is also talking of change. Both have been
in office for barely half a year and have a promising Blairite agenda.
But the Vallenzi are also open to the same criticism: that as far as
reform goes, they are all mouth and no trousers.
France and Italy pose a grave threat to the single currency.
They are the euro zone’s second- and third-largest members. Growth in
France is flat and unemployment stuck at over 10%. The budget has not
been balanced for 40 years, and public spending takes 57% of GDP—far the
highest in the euro zone. Italy is no better. It is in recession, and
its debt is over 130% of GDP.
They are also laggards in reform. Whereas Spain has started
to get to grips with its structural problems, France’s Socialist
president, François Hollande, has not even tried. Instead of reducing
taxation, he has raised it. Instead of encouraging business, he has
added to its burdens. Instead of promoting reforms, he has avoided them.
In Italy, a series of well-meaning prime ministers have been unable to
overcome the formidable vested interests that see reforms as a threat to
the special deals they have carved out.
This combination of size and lassitude is dangerous, because
France and Italy are at once too big to fail and too big to bail out.
But the two countries’ governments now offer reason for hope. Mr Renzi
has overseen constitutional change that should make it easier to force
through reforms, and promised a “revolution” to speed up justice and
promote investment.
Mr Valls has reshuffled his government to dump its most leftist
anti-reformers. He sounds pro-business and promises to cut spending,
reform welfare and the labour market and open up protected professions.
The 35-hour working week is being made more flexible, and the top tax
rate of 75% will lapse next year.
Until now Mr Hollande’s unpopularity
has been a weakness, but as the least-popular president in the history
of the Fifth Republic, backing Mr Valls may be his only chance. After
two years of failure, French voters seem to understand that there is no
alternative to reforms: they are now even in favour of working on
Sundays. Mr Valls may also get most Socialist deputies to accept change
by threatening fresh elections if they do not.
Read more: Economic reform in Europe: The rise of the Vallenzi | The Economist
