September 29, 2014 / 10:14 PM / 3 years ago

Italy's Renzi wins party vote on labor reform

Italy's Prime Minister Matteo Renzi addresses the 69th United Nations General Assembly at the United Nations Headquarters in New York September 25, 2014.Mike Segar

ROME (Reuters) - Italian Prime Minister Matteo Renzi on Monday overcame fierce opposition from the old guard of his center-left Democratic Party (PD) and got backing for plans to make it easier to fire workers at big companies although he offered little detail on his labor reform.

At the end of five-hour party meeting Renzi won a vote on broad brush proposals to extend jobless benefits, cut the number of short-term contracts, boost the role of employment agencies and reduce job protection for permanent workers.

This last point has become the focus of a bitter internal battle in the PD. Renzi won with 130 votes in favor, 20 against and 11 abstentions, but the tone of his party critics point to a difficult path before any reform can become law.

Under mounting pressure to deliver on his ambitious promises, Renzi told PD leaders the party had to overcome a "taboo" against changing rules that date from 1970 during Italy's postwar economic boom.

The 39-year-old prime minister has staked his credibility on reform, accusing the left of waging an ideological battle over outdated job protection that unfairly favors employees of big companies but leave others in the cold.

"You can't create jobs by defending rules of 44 years ago; you create it by innovation" he said.

With the economy set to contract for a third year running in 2014 and unemployment at levels not seen since the 1970s, creating work is an urgent priority for Renzi, who came to power in February promising sweeping reforms to lift Italy out of its worst slump since World War Two.

He wants to reduce the job-protection measures enshrined in Article 18 of the workers' statute which guarantee that employees dismissed without justification must be reinstated, though he has still not made his detailed intentions clear.

No precise reform has yet been presented to parliament and legislation is unlikely to be passed before the second half of next year.

Article 18, which only covers companies with more than 15 employees and excludes the public sector, is fiercely defended by unions, whose shrinking power base is in Italy's declining heavy industry and public service.

Workers in small firms as well as a growing army of often younger workers on insecure short-term contracts have virtually no protection or welfare support.

In Monday's debate, representatives of what Renzi calls the PD "old guard" accused him of offering a symbolic sop to the European Commission rather than helping Italy's unemployed.

Former Prime Minister Massimo D'Alema argued that Article 18 had already been largely abolished by a labor reform under Mario Monti just two years ago, and the effects of that reform should be properly assessed before embarking on a new one.

He said Renzi governed with "slogans and advertising," an approach that would produce "very scarce results."

Pier Luigi Bersani, who was PD leader until a disappointing result in the 2013 general election, said Italy was on "the edge of a precipice" because of Renzi's authoritarian leadership style.

Susanna Camusso, head of Italy's largest union, the CGIL, said the union was ready to go on strike if Renzi did not change course.

IMPACT UNCLEAR

The actual impact of Article 18 on day-to-day industrial relations appears to be limited, with figures cited by both Renzi and the CGIL showing fewer than 3,000 workers were reinstated last year because of it.

Federico Ghizzoni, chief executive of Unicredit, one of Italy's biggest banks, said that cuts to payroll taxes would probably help employers more, but that the whole system of labor market rules needed overhauling.

Unions say scrapping Article 18 will do little to create jobs in an economy now back in its third recession in six years and will simply punish workers, many on low pay, who are already bearing the brunt of the crisis.

Renzi says the rules deter foreign investors wary of being trapped in long and unpredictable court battles with sacked employees claiming reinstatement.

It is unclear how much reforming job protection rules will help a country that has seen its manufacturing capacity cut by 15 percent and industrial output fall more than 25 percent since the economic crisis began in 2007.

Official unemployment runs at almost 13 percent with youth unemployment at nearly 43 percent but even the stark headline rate obscures the real scale of the problem.

Italy has fewer people in work than most of its competitors, with an employment rate last year under 60 percent, worse than any other European Union country apart from Greece, Spain and Croatia. In the poor south of the country, only 4 in 10 of working age people are in work.

Additional reporting by Gianluca Semeraro in Milan; Writing by Gavin Jones and James Mackenzie; Editing by Robin Pomeroy, Hugh Lawson and Cynthia Osterman

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