October 9, 2014 / 12:28 AM / in 3 years

Italy's prime minister wins labor reform confidence vote

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

ROME (Reuters) - Italian Prime Minister Matteo Renzi won the most important parliamentary confidence vote of his eight-month-old government early on Thursday on a labor reform proposal he hopes will boost his EU credentials.

Renzi won the vote in the upper house Senate 165-111. He would have had to step down if he had lost. The vote, expected in the afternoon, was delayed late into the night after a day of raucous stonewalling by opposition parties. The legislation now goes to the lower house Chamber of Deputies.

The prime minister called the vote in order to cut short debate over his broad proposal to change labor laws that many economists say have stifled job creation and scared off foreign investors in a country whose economy has stagnated for two decades.

“We want to eliminate the poison that kills investment,” Labor Minister Giuliano Poletti said in a speech to the Senate before the vote.

The government’s proposals are still very broad-brushed, however, and it remains to be seen how far Renzi’s proposed reform will go.

For example, it is unclear how the government plans to change a measure that now makes it very difficult for companies with more than 15 employees to fire workers with open-ended contracts. Also, based on official comments thus far, none of the changes are expected to apply to Italy’s bloated public sector.

Senators voted on a so-called “delegating law,” which gives the government power to work out the details of the reform over the coming months.

Government officials hope that success in the confidence vote will be seen by Italy’s EU partners as a blank cheque for Renzi in pushing his so-called “Jobs Act.”

Changes to labor laws will let Renzi show Italy’s partners that his reform agenda is advancing and boost his EU credibility at a time when Italy is backtracking on its debt-reduction pledges amid a dire economic downturn and record unemployment.

Renzi is preparing an expansionary 2015 budget in an attempt to stimulate the economy and is hoping the European Union can cut him some slack to bring down Italy’s massive public debt more slowly than the bloc’s fiscal rules dictate.

The chances of such leeway being granted will increase if the European Commission, Germany and other northern European countries are persuaded that Italy is finally carrying out structural reforms that can improve its dismal growth potential.

SACRED COW

The center-left government of the 39-year-old former mayor of Florence enjoys only a slim majority in the Senate. Renzi went into the vote saying he did not fear dissent within his own Democratic Party (PD), which he took over less than a year ago, but some senators in the PD were very critical of the measure.

One PD senator, Walter Tocci, said he would vote confidence in the government but then resign his seat in parliament in protest against the reform that he said could erode workers’ rights and risked betraying the hopes of Italy’s unemployed youth.

Unemployment in the euro zone’s third-largest economy is running above 12 percent and for Italians under the age of 25 it is at an all-time high of 44 percent. Young people lucky enough to find work are invariably hired on temporary contracts with no employment rights or job protection.

Renzi has made clear that any eventual law must change Article 18 of the Labour Statute, which makes it difficult for companies to fire workers on indefinite contracts.

Evidence shows that most workers prefer to negotiate a severance payment and that the number of fired employees who return to their posts after a judge rules in their favor is limited. Still, companies say the possibility of being forced to take back staff adds a level of uncertainty that makes it difficult to invest in Italy.

Renzi faces resistance from hard-line labor unions over any significant change to Article 18, the sacred cow of Italian labor law that successive governments have failed to tackle. One union, the leftist CGIL, has threatened a national strike if the government tries to change the law.

Renzi on Wednesday afternoon hosted a conference of EU leaders in Milan which he called to discuss ways of stimulating growth and job creation across Europe.

At the meeting, France and Italy pressed for an easing of budget restrictions to favor economic and jobs growth, but won no concessions from German Chancellor Angela Merkel, who insisted countries had to move faster on reforms.

Additional reporting and writing by Steve Scherer; Editing by Alessandra Galloni, Mark Heinrich and Lisa Shumaker

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