Thought it was about time to start getting my thoughts out of my own head, if anything for my own sanity :)
Sunday, February 19, 2012
Mario Monti: An Update
I haven't written about the Italian government or the economic crisis in a while, mostly because of the conflicting stories, the misinformation and the fatalism that afflicts this country can be incredibly overbearing. However, I read a great article on my friend's webpage the other day, and surprise surprise not only was it a tad optimistic, it suggested that Italy might finally be getting over the bad rep it has in Europe, but some of the most fatalistic Italians I know didn't shit all over it! Berlusconi was famous for telling everyone that everything was going juuust fine, while not even hiding the fact that he was robbing the country blind, which contributed a lot to the mentality in Italy that whatever they say on TV the reality is surely 1000 times worse. However, it seems as though this university professor may actually be the first level-headed guy we've had in a while. Whether or not his intentions for the country are good remains to be seen, but at least we seem to be at least taken slightly more seriously as a country again. I thought it was time for an update, let's see where we go from here:
Mario Monti: Italy's global player with the ear of Obama and Merkel
Italian PM's standing in Washington and Berlin gives him a great deal of clout as he seeks to negotiate eurozone crisis
taly's prime minister, Mario Monti (right), is in stark contrast to his flamboyant and controversial predecessor. Silvio Berlusconi. Photograph: Michel Euler/AFP/Getty Images
It is a long time since Washington said anything nice about Europe's handling of its debt crisis. Publicly – and even more so in private – US officials have been withering about efforts to stare down the bond markets, save the euro and avert a new slump in the west.
But the criticism abated last week when a priestly, ascetic 68-year-old Italian went to the White House in the latest attempt to shift the terms of the argument raging over Greece, his own country, and the fate of the single currency.
Mario Monti, the Italian prime minister, was garlanded with the kind of praise that may elevate hope over reality as he grapples with the third biggest sovereign debt in the world.
"The prime minister came in at a very difficult time," said Barack Obama. "We appreciate the strong start and the effective measures he is promoting inside Italy … He's also been able to generate confidence throughout Europe."
Confidence has been in short supply in Europe for two years, not least this week as the debt drama in Athens hurtles towards its denouement.
But Time magazine put the former economics professor on its cover and dubbed him "the most important man in Europe" and that "the fate of the world economy rests in Mario Monti's hands".
That may be overwrought, but there is little doubt that Monti's arrival as Italian PM in November has changed the political dynamic among Europe's leaders in their longrunning struggle to resolve the debt crisis. "The situation in Italy is not good, but it is manageable," said a minister from one eurozone country. "Monti is trusted by European partners."
In this, as in character and temperament, he is the very opposite of his flamboyant and discredited predecessor, Silvio Berlusconi. And paradoxically, Italy's weakness makes Monti more influential and powerful for the simple reason that the European elites believe he is their best hope of reforming Italy, bringing down its €2 trillion (£1.66tn) debt (120% of GDP), and reviving the eurozone's third biggest economy.
The European hopes lend Monti a lot of clout, not least in his ability to emerge as the first authoritative challenger to the German chancellor, Angela Merkel, over her stewardship of the euro crisis.
"Monti is the new factor in the equation," said a senior EU official. "He's listened to in Berlin." And he is not shy about spelling out what he expects of Germany if his ambitious plans to retool the Italian economy are to bear fruit.
Last week in Washington he called for Germany to liberalise its services sector, do more to spur domestic demand (echoing US calls), and act more resolutely to save Greece even if Athens was not fully complying with new bailout terms set in Brussels, Berlin, and Frankfurt.
Monti has previously told Merkel, bluntly, that regardless of the success or failure of his domestic reforms, Italy would be hobbled by the high cost of its borrowing. Only Germany could fix that by vastly increasing the eurozone's bailout fund to deter the markets from betting against Italy.
Criticism of German policies on the euro is common, but carries more weight coming from Monti. Senior diplomats say some in the German government are starting to bristle with indignation at his demands.
Monti has already passed an austerity package designed to eradicate Italy's budget deficit by 2013. But critics pointed out that cutting spending was easy compared with kickstarting Italy's moribund economy, the acid test for Monti.
As Monti was being feted in the US, political parties in Rome were trying to water down his bill liberalising parts of Italy's closed shop economy with hundreds of amendments. Around 200 were designed to ringfence Italy's privileged professions. One analyst argued that even if he pushed his bill through, Monti's reforms were mere window dressing. "The way to lift the economy is through real incentives to companies and lower taxation and I don't see that," said Raffaele de Mucci, a politics professor at Rome's Luiss University.
"Monti is lucky that as a technocrat prime minister he does not have to worry about consensus and that is a big difference with the Greek government, but he could yet risk problems when he tackles labour reform."
Monti is embroiled in tricky talks with unions to make hiring and firing easier and has promised to introduce legislation by the end of next month.
"This is the first real test – if he can get through that he will make it to the end of his mandate in 2013," said Roberto Perotti, a professor of economics at Bocconi University in Milan. "Next comes reform of the legal system, which is perhaps the major problem, which no one has been able to change in 30 years and for which he will need the reluctant help of magistrates and lawyers."
If a faster legal system would attract more foreign investment, then so would a reduction in bureaucracy, starting with the scrapping of provincial authorities, which sit between town councils and regional governments. Although they are protected by the Italian constitution, the Monti government intends to hand over their powers to towns and regions, leaving them as "empty shells", according to Treasury undersecretary Vittorio Grilli. Only by making such meaty reforms stick between now and 2013 can Monti hope to have any impact on sluggish growth.
In the meantime, despite winning plaudits for his professorial demeanour – a relief after Berlusconi's clowning – Monti has risked alienating voters by describing the culture of jobs for life so prized by Italians as "monotonous". But no politician, least of all Berlusconi, is keen to oust Monti while he pushes through tough legislation they have spent careers avoiding. And while Berlusconi's party splinters, the centre-left Democratic party is riven by a financial scandal.
"If Berlusconi did the dirty on him it would be the only way to ensure Monti would go into politics, and that would be a disaster for Berlusconi," said James Walston, professor of politics at the American University in Rome.
"Monti's biggest obstacle is bureaucratic inertia, helped by vested interests with key people in ministries who can stop pieces of paper being passed. Compared to that, Berlusconi or the unions can be dealt with because they are visible."
Perotti recalled studying under Monti when the PM was a professor at Bocconi in Milan and said he had brought an enlightened feeling to the university. "He was one of the few who had studied in the US and he encouraged us to do so to make us less provincial."
Decades later, the rest of Italy is also ripe for change, said Walston. "Italy changes when there is a huge stimulus from outside, it happens every generation and it does not happen gradually."
Berlusconi, who degenerated into an international laughing stock and a European pariah, was fond of urging US business to invest in Italy because of the prettiness of the country's "secretaries". On Wall Street last week, Monti appealed for US investment based on his economic and financial reforms.
Already the cost of borrowing for Italy has fallen almost two percentage points to around 5.5% since he took office. That is still expensive, but out of the bailout danger zone. Time may be Monti's biggest enemy since he has pledged to stand down at next year's elections.