The good news is that Italy is officially pulling out of a recession. Yet major economic reforms are still necessary to prevent a relapse. As Rome considers its policy next steps, leaders should heed economists’ warning that judicial reforms remain essential to encourage foreign investment and to ensure these sparks of economic recovery are fanned into flames.
For years, the Italian civil justice system has been a prime target for reform. Last year, for instance, the International Monetary Fund cited the judicial system’s inefficiency as one of the main reasons for reduced investment, slow growth and a difficult business environment.
Earlier this year, the World Bank relegated Italy to 147th place out of 189 countries when it comes to the enforcement of contracts, a measure of the number of days from the moment a lawsuit is filed until payment is rendered. According to the ministry of justice, in 2013 litigation lasted, on average, 844 days in first instance, 1,066 days in appeal and 1,223 days before the Supreme Court of Cassation.
Prime Minister Matteo Renzi’s government has shown a determination to address the problems that traditionally put off foreign investors. The recent Jobs Act, for example, has streamlined the Italian labor market by introducing clearer rules on hiring and firing and simplifying the employment system.
The cornerstone of these measures is the establishment of a separate track for out-of-court settlements, which offers alternative dispute-resolution methods for minor cases and certain family-law matters. In addition, courts can now fast-track simpler proceedings, and new rules have been adopted to accelerate certain enforcement procedures. Judges are now required to order the losing party to pay the winner’s attorney’s fees, and higher interest rates are imposed on the amounts awarded. This could prove to be an effective method to limit frivolous litigation.
A measure the government should seriously consider is limiting the number of decisions that can be appealed before the Supreme Court, as is already the case in many jurisdictions. This would make a real difference in reducing the length of proceedings.
Implementation of these measures has, however, been met with resistance from the usual vested interests. Judges have been apprehensive about reforms aimed at promoting specialization and efficiency within the courts, and have tried to oppose the government’s efforts to reduce judges’ annual leave to 30 days from 45.
The government was also embroiled in fierce confrontations with the lawyers’ national guild, but ultimately managed to reach a compromise by limiting the scope of the out-of-court mediation procedures while allowing lawyers to play a greater role in them.
Progress is still too slow to reassure foreign investors that, if dragged before the Italian courts, they won’t be stuck in endless litigation. But this obscures the greater story. Up until now, although discouraged by the problems in the Italian civil procedure, investors nevertheless found ways to capture opportunities, minimizing their risks by referring disputes to arbitration or courts with faster processes and specific expertise.
Mr. Renzi is now sending a strong signal that foreigners can feel more confident in investing in Italy knowing that the government is seriously tackling these problems. It is this determination, more than any single reform, that offers the most positive sign of Italy being on the road to a full recovery.
