Renzi Should Mimic Schroeder in Cutting Taxes, Berger Says

Italian Prime Minister Matteo Renzi, who cut taxes for lower-income workers, should sharpen economic reforms and follow former German Chancellor Gerhard Schroeder’s example in reducing the fiscal burden, said Roland Berger.

“Renzi should use the popular support he gained in the European elections to make his reform program a bit tougher,” Berger, 76, founder of Roland Berger Strategy Consultants, said in a June 13 interview in Venice, Italy. “The tax system needs to become more transparent and investment-friendly, corporate taxes need to come down. Look at what Schroeder did.”

Berger, an adviser to Chancellor Angela Merkel and former adviser to Schroeder, said some economies in peripheral Europe are “very weak,” with public debt and youth unemployment weighing on the region. While the economy of the euro area exited recession last year and is predicted to expand 1.1 percent in 2014, some of the bloc’s largest economies such as France and Italy are still struggling.

In Italy, “in particular, things have been developing much more slowly,” said Berger, a member of the board of Italian publisher RCS MediaGroup SpA. “Everyone is waiting for the promised reforms, domestic demand is still weak and the tax burden and bureaucracy still weigh.”

Schroeder’s Agenda 2010 package unveiled in 2003 cut taxes, made it easier to fire staff, forced those out of work for more than a year to accept any reasonable job offer and reduced long-term benefits. The efforts helped German businesses turn around.

Record Unemployment

The Italian economy shrank 0.1 percent in the first quarter before industrial production returned to growth in April, the national statistics agency said June 10. Renzi’s been contending with near-record unemployment at 12.6 percent in April, and a steady decline in bank lending to private-sector businesses.

“Renzi isn’t afraid of conflict and should take away the privileges of those who are in long-term jobs,” said Berger. “He has to eliminate the divide of the labor market.”

Standard & Poor’s said June 6 the prospects for growth in the Italian economy remain weak and there’s at least a one-in-three chance the country’s debt ratings will be lowered by next year. It currently rates Italy’s long-term debt BBB, the second-lowest level considered investment-grade.

A spokesman for Renzi wasn’t immediately available to comment.

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