The Unelected Super Mario
In November 2011, Mario Monti was invited by the Italian President to form a government after the resignation of Silvio Berlusconi; he swiftly set up a new cabinet, appointed himself the finance minister and refused any salary. Mario Monti is an incredibly intelligent individual and has performed wonders in such dire times for Italy, especially after the farce of Berlusconi’s time in power. Silvio Berlusconi was known for his scandalous private life and questionable business decisions, while his cabinet held a former calendar girl, a minister linked with the mafia and only one female with heavy responsibilities. Mario Monti was a professor of economics, a European commissioner for 10 years and before his announcement as Prime Minister he was chosen as a Senator for Life (of which there are only seven in Italy). His cabinet also holds much more respected officials including: the chairman of NATO’s military committee, the boss of Italy’s biggest retail bank, six other professors and three women in high up positions namely the Interior Minister, Justice Minister and the head of employment and welfare.
The contrasting Time covers of both Italian Prime ministers.
Mr Monti needed a high class cabinet however to face Italy’s over whelming problems, namely that it is Europe’s biggest debtor, with Italy the only country along with Greece to have a debt to GDP ratio over 100%. Many in Europe fear that a Greek default could topple Europe, but it remains a small country, the real worry is Italy. If Italy were to crash it would all but end the euro, the current EU set up does not have the funds to bail it out and Italy’s combination of size and debt would be too much to handle for a fractured Europe. There are signs that Italy will have to be careful not to fall into this trap, with bond yields (borrowing costs) high in January at around the levels that saw countries like Portugal and Ireland needing a bailout (at 7%) and currently are at 6% and rising again. Yet Italy is actually running a very good budget, with the biggest primary budget surplus in Europe (budget excluding the interest payments on old debt), a low budget deficit when compared to European neighbours (targeting 2.7% this year) and a budget plan that hopes to wipe out the deficit by next year. It is rather growth that is Italy’s weakness, they are forecast to shrink this year by around 1% and have hardly grown in the last 10 years. This is mainly down to poor competitiveness by the county in comparison to countries like Germany as they have allowed wages to race upwards making Italy unpopular for industries.
The rise of Italian debt over the last few decades.
In such a short space of time, Mario Monti is attempting to make more changes to the Italian system than Berlusconi made during his whole time in power. He has managed to push heavy reforms through parliament while keeping acceptable approval rates with the public, who have realised that changes must occur for Italy to survive. One big step he is taking is to make Italy more competitive within its economy, this is important as monopolies have existed in markets such as the gas industry for far too long. He hopes to complement this with extensive labour reforms that could change the level of difficulty for firms to sack their employees. This sounds wrong to begin with in such harsh times, but it could actually motivate employers to hire more Italians as they would have increased flexibility in staff turnover. There are also other unforeseen problems with the current labour rules; as it restricts young workers from entering the job market with the older generation so enshrined in their jobs, and encourages firms to offer short term contacts which offer less stability to employees and less tax for the government. This first point is backed by current unemployment statistics; Italy’s total unemployment stands at just under 10% (not great but better than most others in Europe) but the country fairs less favourably with Youth unemployment (under 25 years old) where 30% of young Italians are unemployed (only Spain, Portugal, Slovakia and Greece have higher percentages). Mr Monti is also applying strict austerity on his country to try and tackle the huge debt that is weighing them down. This means making unpopular cuts in public spending to try and decrease the budget deficit while also trying to balance it out with growth policies to stop Italy from sliding into a severe recession. This has only been accepted by the Italians as they have seen what could happen if they leave their debt unattended, with Greece not too dissimilar to Italy in some statistics. Mario Monti has also made important reforms to the pension schemes in the country and has campaigned fiercely against tax evasion (rife in Italy).
While Italy’s total unemployment is relatively low, their youth unemployment is disturbingly high.
Mr Monti has finally given Italy credibility in Europe again as well (sorely missed under Berlusconi) with his sensible policies and likeable nature. He seems to get on with most other political leaders and has recently been offering advice on how to solve the Euro’s problems, notably backing the idea of “Eurobonds”. This is refreshing to see as it challenges the status quo that Germany is the only nation allowed to organise the policies of the euro. It is an idea that seems to be catching on as the recently elected French President Francois Hollande has also challenged the authority of Angela Merkel in deciding the EU’s future. He is also keen to get Britain back involved in the EU after David Cameron refused to sign the Fiscal Compact which seemed to set them apart from its fellow EU members. He now needs help from his neighbours, to help Italy face its problems. He has called on Germany to push through reforms on their service industry to help boost European demand and he has called on the EU to help lower the interest rates Italy have to pay on their debt as a reward for the punishing reforms currently being pushed through by his government.
Mario Monti hopes to enjoy a good relationship with David Cameron, to try and get Britain back involved in Europe.
There have been problems for the Italian Prime Minister however, as disagreements over his reforms, political squabbles and the impact of a weak eurozone have damaged his recovery of the Italian economy. His labour reforms have been fiercely criticised by the Trade Unions of Italy, as they argue it will just the give the big employers more power to sack Italians. Mario Monti should have reason to fear as the past two individuals who attempted labour reforms were both assassinated for their efforts. His reforms now seem to have been watered down to appease the trade unions, but there are worries they will become useless and that more weakening of Monti’s resolution to change Italy’s labour market could occur. Originally in the reforms companies would be able to fire employees for economic reasons, Mr Monti has had to back down slightly by allowing courts to reverse these situations, though he hopes to speed up the whole process. The point of the reforms are to free up the labour market and give more freedom both to employers and employees, if this watered down reform doesn’t have the same effect, then Italy would have wasted a great opportunity. Another worry with his labour reforms are that they are long term in nature, so many Italians might not have the patience to keep supporting such changes while future governments could be inclined to scrap the ideas altogether if public cries become loud enough. Public turmoil over politics is also damaging the Mario Monti’s government, as local elections showed a decline in turnout and a rise in protest parties like 5-star movement, a party headed by a comedian who rejects the current Italian set up. This doesn’t bode well for Mr Monti as faith in the government wears thin, while his backing has also taken a hit after a controversial tax on property was released by the government (disliked in a country with 70% homeownership). Then there is the ever raging Euro Crisis, as problems in Greece and Spain reverberate around Europe and cause panic in the markets, effecting Italy’s economy. If the EU was in fine order, then Italy would currently be doing a lot better, with increased demand for its exports and more money available for external investment in Italy, instead the opposite is happening as Italy’s exports are struggling and FDI in Italy is almost nonexistent. This leaves Mario Monti facing an uphill struggle to lead Italy into a recovery, with outside and inside forces both working against him.
Beppe Grillo’s 5-star movement party gained seats in the recent local elections, showing Italian distrust of the current political set up.
The real question is what will happen when Mario Monti has to step down next Easter; the Italian political scene is a disaster with no parties able to boast a clear backing from the public. Many want him to continue as despite the harsh austerity measures he has implemented, he still has the majority of the public’s backing and no-one else can boast that right now. But Mario Monti has always stated he will not continue after next year, plus it would mean him heading a political party, which would negate the neutrality he brings to the current parliament. If he were to be kept in power in any other way it would be democratically questionable as he would remain unelected by the Italian people, a quality that too closely resembles that of a dictatorship. Yet Mr Monti has arguably been Italy’s best leader in years, and has gone about the task of fixing Italy’s problems with integrity and commitment.
Next year will probably bring back the shady Italian politics of old with underhand deals, bribes and deceit. We should value the steady and articulate leadership of Italy while we still can, it’s just a shame that it has come about from an unelected professor being handed the job.