Postcard from Italy: lovely now, storms on the horizon

In a sign of how good a summer it has been in Italy, coastguards are threatening holidaymakers with fines for bagging beach spots by parking deckchairs and towels overnight.

From Sicily to Venice, the "no-vacancies" signs are up and sunlounger spaces are thin on the sand as the country's holiday resorts operate at full capacity in the busiest week of the year.

Prime Minister Matteo Renzi must wish the same could be said for the rest of his country's flagging economy.

Weighed down by sluggish domestic demand and a bad debt-laden banking sector's inability to finance investment, the eurozone's third biggest economy ground to a standstill in the second quarter of 2016.

That was bad news for Renzi, who has staked his political future on a constitutional reform referendum scheduled for November and has to produce a 2017 budget by mid-October.
The 41-year-old former mayor of Florence admitted last week it was a mistake to make the referendum personal, by vowing to quit if voters reject his proposed reforms of parliament and the electoral system.

The vote is shaping up as a referendum on Renzi's two and a half years in office and polls suggest it will be a close-run thing.

- The 'maximum possible' -

Analysts say Renzi needs a budget that will get voters back on side and his ministers began outlining his plans this weekend.

Economic Development Minister Carlo Calenda indicated Rome plans to ignore EU guidance on the country's budget deficit by unveiling an expansionary package.

Data published on Friday showed the Italian economy failed to grow between the first and second quarters of this year.
That means the government will now have to reduce forecasts of growth of 1.2 percent for this year and 1.4 percent in 2017, with knock-on effects on its deficit reduction plans.

"I can't hide the fact that the room for manoeuvre is tight," Calenda said, revealing talks with Brussels on how to stimulate investment were already under way.

Calenda implied the 2017 budget deficit will be allowed to run higher than previously planned, possibly up to the three percent of GDP ceiling enshrined in the eurozone's rules.

The Commission has set Italy a deficit target of 1.8 percent for 2017 - an adjustment it says is necessary to reverse the upward trend in the country's huge debt, which hit a record of just under 2.25 trillion euros ($2.51 trillion) in June.

"We have already obtained a lot of flexibility. We intend to ask for more, the maximum possible, but always within the rules," Calenda said.

- 'Better devil you know' -

Renzi has already floated elements of a possible reflationary package.

These include pension increases for the poorest pensioners and an anti-poverty programme funded from the 500 million euros of annual savings projected to arise from one of the cornerstones of constitutional reform: the abolition of the lavishly financed Senate.

Infrastructure minister Graziano Delrio said Sunday the government is planning to hit the ground running in September by initiating, restarting or refinancing a string of major public works.

The plans include an acceleration of the construction of a new Brenner rail tunnel between Italy and Austria, linking Genoa's port to the high-speed rail network and a cross country high-speed train link between Naples and Bari, as well as several motorway projects.

Economic daily Il Sole 24 Ore said the envisaged measures would have a short-term cost of four billion euros.

Renzi has also mooted bringing forward income-tax cuts planned for 2018 to next year in a bid to appease voters frustrated by years of falling real incomes.

A senior EU official familiar with Italy's negotiations told AFP that Renzi would be able to twist arms in Brussels because of concern about the implications of him possibly losing the referendum and acting on his pledge to step down.
Better the devil you know! If Renzi goes, who knows who will replace him," the official said on condition of anonymity.

A Renzi departure would be expected to lead to early elections which, current polls suggest, could be topped by the populist and increasingly popular Five Star Movement.

The movement founded by comedian Beppe Grillo officially supports a referendum on an 'Italexit' from the eurozone. Although it has played down that commitment of late, the prospect of it coming to power would send fresh shockwaves across Europe after the Brexit vote.