After weeks of market turmoil and political deadlock, where the fate of Europe’s monetary union had become hostage to Italy’s dysfunctional domestic politics, all eyes are now on the new ‘technocratic’ government that Mario Monti has put together.
A highly respected former European commissioner, whose sober style and professional approach is strikingly in contrast with the flamboyant, personable and yet fundamentally self-centred behaviour of Silvio Berlusconi, Italy’s new prime minister has been brought in with the tough task of devising a credible plan of economic reforms to reduce Italy’s large debt and to boost economic growth.
For this he will need to win the support of the deeply divided parliament, to aggregate the different interest groups and to reconcile their differences. At the same time the new government will have to reassure international investors that Italy will not follow the example of Greece and that it will rein in its public debt. At stake, in the shorter term, are several basis points in the spread between Italian and German bonds. Over the longer term, it is Italy’s future prosperity.
Not being driven by electoral concerns makes the new government stronger than many of its predecessors. Only a leader without a direct stake in domestic politics, and therefore free from electoral ‘horse-trading’ and from the preoccupation to capture the marginal votes, stands a chance of ‘re-setting’ Italy. Indeed, Monti’s designation is a direct consequence of the leading parliamentary coalition’s inability to implement the fiscal measures necessary to stop the escalating cost of servicing the public debt. An interim government that would merely manage the country while preparing for early election – as in Greece – would only increase political turmoil and market instability.
The good and the bad
Being an outsider is Monti’s strength ; it is, though, also his weakness. If he wants to accomplish his goals, he will need to overcome this weakness.
First of all, having swiftly put together the new cabinet and obtained the confidence of parliament, Monti now has to win cross-party support for his plan for fiscal consolidation and economic reforms. Reflecting the public opinion’s increasing willingness to accept harsh measures in exchange for stability and improved long-term economic prospects, parliament is likely to give the new prime minister the benefit of the doubt, albeit not its unconditional love. Enjoying a period of truce to implement his programme of reforms will help Monti to achieve the very first goal, to calm the markets and so break the spiral of market distrust.
Secondly, Monti will have to ensure that the government stays in tune with the country. This is not an easy proposition for technocrats whose skills normally lie in devising the right policies rather than in the art of negotiation and political compromise.
In order to implement the unpopular measures that are necessary to bring the public debt, currently at 120% of gross domestic product, down to a more manageable rate, Monti will have to reach out to the whole country, and not just to the parliament. Along with being fair and broad-based, progressive and complemented by pro-growth policies, austerity measures need to be explained to and supported by the people. Otherwise the inevitable public discontent will turn into widespread protest and derail the reform programme.
Finally, Monti will have to rebuild trust in the political institutions and to re-adjust the country’s moral compass. This is by far the most difficult task. Over the years, too many scandals have deeply discredited Italy’s political elite and distorted the selection of candidates to office, with public offices being used as a reward for loyalty and a bargaining chip for favours. Corruption and bad practice have alienated many people from actively and genuinely engaging in the political debate, while the gap between politicians and civil society has widened. By openly promoting merit rather than favours and by searching for fresh ideas through dialogue with civil society, the new government could stand a chance of improving Italy’s institutional and social framework. Particular attention should be given to women and to the youth, the two groups for which the past two decades did not bring any tangible improvement.
It is too early to say whether this Monti will succeed. But his mandate comes with the expectation that this should be the beginning of a new reformist period in Italy, a period in which economic reforms are coupled to a broader process of resetting Italy’s institutional framework and re-styling its politics. Failing this, any success that the new government achieves will be short-lived and will be wiped out by the next elected government, whenever it comes in.