The Italian Mind

Reflections from the Boot

Archive for the tag “bond”

Is Italy up to the task now?

Italian PM, Mario Monti

Mario Monti, the Italian Prime Minister

After its former Prime Minister Silvio Berlusconi resigned about one month ago, Italy has not enjoyed any improvement in terms of market trust. With the BTP-BUND spread index sill high between 450 and 500 base points, Italy seems to have a long and difficult march ahead before seeing the light at the end of the tunnel. For those who strongly asked Berlusconi step aside for the good of the nation this suffices to say Mr.B was not the real issue. In fact, the market trust is based on the ability to pay debts and the Bel Paese is now facing one of the most difficult moments in republican history.

Italy lived a similar experience only once in its modern history. In the aftermath of WW2, the country was in ruins – literally – and the (re-)founding fathers had to take a serious burden on their shoulders. The souls of people took sides, with fascists and resistance fighters being the two faces of the same coin. But the past and current situation, albeit having several commonalities, show some significant differences. There are no ruins today, no country to rebuild, no consciences to wash clean, just as no post-war liquidity injections or support plans will arrive from outside as an helping hand. The Communist block vanished more than 20 years ago, and terrorism is not a single threat but rather a most complex one.

The war Mario Monti, the Italian economist President Giorgio Napolitano decided to appoint Prime Minister to rescue the Italian situation, is a different one and will be fought on a different ground. Europe as a whole, including leaders like the German Chancellor Angela Merkel and the French President Nicholas Sarkozy, has this very clear. The debt fire the US have started with the subprime mortgage crisis in late 2006 still burns and is way out from being extinguished. Will Mr. Monti’s choices be enough to cope with it? Will his cabinet decisions the right extinguisher?

I will cover the issue of the attitude of Italian people versus their politicians in another post. Briefly, the ordinary people do not like the ample basket of privileges the people’s representatives enjoy, at all. And this is one point for Monti. The members of his cabinet – and Monti himself – are not politicians. They have not been elected nor are they supported by any political party. Practically no one of the ministers or undersecretaries has ever had anything to do with politics. On the contrary, all of them are technocrats and of course their area of expertise coincides with the task each of them has been assigned. Mr. Giampaolo Di Paola, for example, was a 4-star Admiral holding the post as Chairman of the Nato Military Committee before becoming the Minister of Defence. Mrs. Annamaria Cancellieri, a Prefect, has gained several experience on the field all over Italy until reaching the Ministry of Interior’s top position. The same can be said about all the ministers in the cabinet, which brings to another point: support.

Rarely has been observed such an overwhelming trust vote majority in the Italian Parliament. Instead Mr. Monti’s cabinet obtained 281 votes at the Senate and 556 at the Chamber of Deputies, an all-time win. It is too soon, however, to say the government will last. Both center-left, center and center-right parties, the Democratic Party (PD), the Union of Christian Democrats (UDC) and the People of Liberties (PdL) respectively, have granted their support to what they recognise to be the most pressing needs Italy has to address: cut public spending and lift revenues, change the pension system, reintroduce a property tax on first homes and make it easier for companies to hire and fire workers, to help bolster Italy’s anemic economy. In sharp contrast to Mr. Berlusconi’s cabinet, whose clashing vested interests blocked economic reform, Mr. Monti’s cabinet draws from academia, banking, business and the upper echelons of the civil service. Some ministers have strong ties to the Roman Catholic Church, whose support is still needed for any Italian government to gain traction.

Italy’s debt accounts for $2.6 trillion and is the highest in the euro zone after Greece and one of the highest in the world. After the strong opposition of Germany to the rescue plan for Greece, no one can imagine what the scenario may be in case of an Italian default, especially if we consider the momentous impact such a possibility could have on the stability – or even the existence – of the European single currency. Or perhaps, everybody knows.

The new Italian government is certainly an improvement with respect to the previous one. The problem is that this may not satisfy markets, which in fact are quite unstable when Italian matters are at stake. Indeed, that is a tall order for a prime minister with little experience in the rough and tumble of Italian politics and no politicians in his cabinet. Mr. Monti said the lack of politicians gave the cabinet independence, but it remains to be seen whether that translates into the clout needed to change the laws and customs of a postwar welfare state built on a patronage culture that dates back centuries.

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