Feb. 14 (Bloomberg) -- Italian Prime Minister Enrico Letta plans to resign today, bowing to pressure from his party and possibly clearing the way for a new government led by Matteo Renzi, his chief rival.
Letta, 47, is the third premier in a row brought to an early end by Italy’s fragmented parliament. It will now be up to President Giorgio Napolitano to appoint a new prime minister or dissolve the legislature and call snap elections. The 39-year-old Renzi, who turned the Democratic Party against Letta, said in a speech yesterday that he wants to avoid a vote.
“Napolitano will want to avoid early elections and hence will give Renzi the mandate,” Marco Stringa, an economist at Deutsche Bank AG in London, said in a research report. While the new government will focus on boosting the stagnant economy, “Renzi’s implied assumption is that changing the PM and the cabinet will suffice. It is a risky strategy.”
Letta will head to Napolitano’s office in Rome at 4 p.m. after presiding over what may be his final cabinet meeting. Renzi tended to his ceremonial duties as mayor of Florence, hosting a party in the Palazzo Vecchio, the Medici family’s former residence, for couples celebrating their 50th wedding anniversaries. He appeared with the traditional red, white and green sash over his shoulder and told the assembly he was happy.
“This is one of the most beautiful moments in the last five years,” Renzi said.
Letta’s resignation ends weeks of intra-party friction that brought the 10-month-old government to a near standstill. The premier surrendered after Democratic Party leadership ratified Renzi’s motion to withdraw their support. In a statement yesterday, Letta said he informed Napolitano of his intention to hand in his resignation today.
Italy’s 10-year bond yield fell one basis point, or 0.01 percentage point, to 3.70 percent at 11:47 a.m. local time. The political wrangling hasn’t unsettled the market as the yield dropped to 3.66 percent on Feb. 12, the lowest since February 2006. The FTSE MIB benchmark stock index rose 1 percent as the national statistics office reported fourth-quarter economic growth of 0.1 percent, the first increase since 2011.
The Democratic Party, known as the PD, favors progressive taxation and has traditionally drawn votes from organized labor and pensioners. While it has the largest number of lawmakers in parliament, the PD needs a broad coalition to reach a majority. Under Letta, that required compromises, notably a more regressive tax policy characterized by the cancellation of a levy on real estate and an increase in the value-added tax.
Renzi would probably face the same policy pressures as Letta if he became premier. Deputy Prime Minister Angelino Alfano, leader of the second-biggest party in Letta’s coalition, said he was open to backing Renzi as long as the program was acceptable to his constituents. Alfano, a former ally of ex-Prime Minister Silvio Berlusconi, seeks votes among professionals and entrepreneurs.
The country needs “to start a new season, with a new executive that lasts for the entire mandate of this legislature,” said Renzi, the mayor of Florence since 2009 and general secretary of the PD since December. “We thank Prime Minister Enrico Letta” for his work, Renzi said.
The legislature, installed by a general election last year, is due to run until 2018. If a snap vote is bypassed and Renzi takes over, he would become the third premier in a row to form a government without winning a general election.
Renzi has a following on both sides of the political spectrum, dating from his failed bid to secure the PD’s nomination for the 2013 general election. In that campaign, he attracted Berlusconi supporters by challenging labor unions and appealed to younger voters by appearing on a television variety show.
He said last month he wants to raise taxes on financial activities to help fund cuts to employers. The government must extend unemployment benefits and simplify laws regulating labor contracts, he said.
Letta’s fall will lead to Italy’s fourth government in a little more than two years. Berlusconi, a three-time premier, was abandoned by his majority in November 2011 at the height of the European debt crisis. Mario Monti’s caretaker government was brought down amid recession, and inconclusive elections in February 2013 left Letta in charge of a coalition of formerly rival parties.
Renzi has been one of Italy’s most popular politicians in polls since 2012. He won the leadership of the PD in December with 1.5 million votes, or 68 percent of the total, in balloting against Giovanni Cuperlo, a member of the lower house of parliament, and Giuseppe Civati, another lawmaker.
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