Italy's Renzi faces confidence vote over labor reform

By Francesca Piscioneri and Philip Pullella

ROME (Reuters) - Italian Prime Minister Matteo Renzi faces the most important parliamentary confidence vote of his eight-month-old government on Wednesday, asking coalition partners to back labor reforms in a move he hopes will boost his EU credentials.

The vote, which Renzi is expected to win, will be held in the upper house Senate in the late afternoon. He would have to step down if he loses.

Renzi 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 the past two decades.

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

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

In particular, it is unclear how the government plans to change a measure that currently 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.

In Wednesday's confidence vote, lawmakers will vote on a so-called "delegating law" that gives the government the power to work out the details over the coming months and through subsequent parliamentary votes on specific measures. 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 allow Renzi to show Italy's partners that his reform agenda is moving forward and boost his EU credentials 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 EU 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. But Renzi said he did not fear negative surprises in the vote despite dissent within his own Democratic Party (PD).

Renzi has made clear that any eventual law must change article 18 of the Labor Statute, which makes it difficult for companies to fire workers on open-ended contracts.

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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.

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

The vote comes on the same day that Renzi is hosting a meeting of EU leaders in Milan which he called to discuss ways of boosting growth and jobs across Europe.