The Italian Job

Mario Monti’s announcement last Saturday that he plans to resign his post as Italy’s prime minister earlier than was previously expected has thrown Italian politics, and the whole Eurozone, into renewed turmoil. Monti, a Yale-educated technocrat and former EU commissioner, took over in November of last year after market pressure forced Silvio Berlusconi to quit in order to prevent the ignominy of Rome having to apply for an international bailout. The plan was for him to serve the rest of the parliamentary term, until elections scheduled for no later than April 2013.

But last week, Berlusconi’s PdL (People of Freedom) party, which had been backing the Monti government, pulled its support, just as its exceedingly controversial 76-year old billionaire leader declared that he would make one more run for the premiership (he has been elected three times already in the span of nearly two decades). This led directly to Monti’s announcement that he will go as soon the 2013 budget is passed, leading to an early election, probably before the end of February (it must happen within 70 days of the dissolution of parliament).

This was bad news for EU officials and heads of government. From their point of view, Monti’s 13 months in office have provided a welcome period of calm and policy progress compared to the flamboyant futility of Berlusconi’s reform “efforts” and the egregious nature of his alleged personal and political misdeeds, which had brought Italy to the brink of being shut out of the bond markets.

Backed by the PdL, the center-left Democratic Party (PD) the centrist Christian Democrats of the UDC, Il Professore (as Monti is known) passed austerity and structural reform measures that raised taxes, cut spending, made the labor market somewhat more flexible, and opened up to competition professions that had been heavily regulated by the government. On the European stage, he was the undisputed leader of the southern bloc, whose domestic record gave him the credibility to challenge the fiscal fasting promoted by chancellor Merkel and her northern allies. The country’s borrowing costs fell, aided by the other Mario (Draghi, at the European Central Bank, who pledged to do “whatever it takes” to save the euro), and the critical Italian front of the Eurozone debt crisis went quiet. If Europe’s key players were polled on whether they favored Italy’s current prime minister against its former, Il Professore would beat Il Cavaliere in a landslide.

Italians, however, do not necessarily feel the same way. The Monti government’s policies have deepened the recession that began in the second half of last year. The economy is expected to shrink by 2.3 percent this year and another 0.5 percent in 2013, leading to a short-term increase in Italy massive debt-to-GDP ratio (it is already over 125 percent). Unemployment has climbed to 11.1 percent in October 2012, compared with 9.4 percent in November 2011. Taxes have gone through the roof. Meanwhile, despite Monti’s prodding, Merkel continues to resist or to slow-walk major institutional moves to deal with the European crisis, like sovereign debt pooling and banking union.

This creates an opening for Berlusconi, who may act like a clown and be weighed down by scandal and legal troubles, but who has always been adept at communicating with the Italian voter. He has already signaled the ground on which he plans to fight the coming campaign: his message will be anti-austerity, and anti-Germany. In an interview on Tuesday on one of his own TV channels, he accused Monti of promoting an agenda that was too “German-centric” and he said that “all the economic statistics have got worse” since his successor took over. Questioned about the rise in Italian borrowing costs since Monti announced his imminent resignation, he dismissed it as “a trick” engineered by a nebulous “they” who “tried to bring down the majority that ruled the country,” a clear reference to his departure a little over a year ago.  

Despite Italians’ fatigue with austerity, the odds do not look good for a fourth Berlusconi term. His party is currently in distant third place in the polls. In the last poll before Monti’s announcement, conducted by the SWG institute and released last Friday, the PD topped the field with 30.3 percent of voters’ preferences, followed by 19.7 percent for comedian Beppe Grillo’s Five Star movement. The PdL got only 13.8 percent. Adding to Berlusconi’s challenges, the Catholic Church has voiced its disapproval of his comeback, with Archbishop Angelo Bagnasco of Genoa telling the Corriere De la Sera newspaper that he is “aghast” at “the irresponsibility of those who think of fixing themselves while the house is still burning.”

The 2-trillion-euro question (about the size of Italy’s debt) hanging over the country since last Saturday is: will Monti run? He will not yet be drawn on the subject, but media reports suggest that centrist leaders like Pier Ferdinando Casini, head of the Catholic UDC and son-in-law of one of Italy’s most powerful businessmen and media barons, and Luca Cordero di Montezemolo, chairman of Ferrari and founder of a new civic movement, are urging him to take the plunge.

If he does, it will be a whole new ballgame. According to the Financial Times, supporters of a centrist coalition with Monti at its head say they expect to get anything from 15 to 25 percent of the vote. But his coalition would lack the political and media support infrastructure available to both the PD and to Berlusconi. Monti himself has never campaigned for office before and his sober, professorial persona is hardly suited for the hustings. In addition, he is said to have his sights set on the presidency when Giorgio Napolitano steps down in May, and he may not want to jeopardize his chances by entering the electoral fray.

Whatever happens, the Italian front will likely experience flare-ups in next few months. Monti took Italy from near-panic to stability, but that stability is now turning into stagnation. After the election, he or his successor will have to safeguard and expand on his reforms while at the same time pushing hard for less austerity, more pro-growth policies in Italy and Europe as a whole, and meaningful steps towards minimal fiscal and banking union without which the Eurozone cannot long survive.

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