LONDON – Prime Minister Mario Monti helped stabilize Italy at the most perilous moment of its financial crisis, and he gets credit from many for starting the country on a long road of necessary structural reforms.
The former economics professor resigned in December after just a year in office. But on December 29, after days of intense media speculation, he announced that he would seek a second term, leading Italy’s centrist parties into next February’s elections. Although his pro-reform alliance lags in opinion polls, many Italians, including those in a business community that has embraced his leadership, believe Monti’s ideas – and most likely the man himself – will continue to play a big part in the country’s politics.
Markets, initially nervous about Monti’s departure, seem heartened by that prospect. Analysts say that, regardless of whether the centrist parties win, the influence Monti and his ideas are expected to wield after the vote is likely to push Italy further along the path of centrist reform favored by most Italian business leaders.
“Despite the uncertainty, polls assign a high probability to a victory of a center-left coalition (that is) essentially pro-Monti” and led by Pier Luigi Bersani, the head of the Democratic Party, said Credit Suisse’s Giovanni Zanni in a recent European Economics & Strategy note entitled, “Italy – Fluidly As We Go.”
“This scenario should be seen as neutral or mild positive by markets,” the report added.
The centrists, running under the banner “Monti’s Agenda for Italy,” could form a governing coalition with Bersani’s party, which on its own enjoys a close to 35 percent approval rating in the polls, compared to the Monti group’s 10 to 15 percent.
Monti was appointed to lead an unelected government of experts in November 2011, as economic turmoil mounted and pressure drove Italy’s borrowing costs frighteningly high, with 10-year bond yields passing 7 percent.
His emergency government is credited with helping to restore investor confidence, along with the financial credibility of the world’s eighth-largest economy. Backed by European allies such as German Chancellor Angela Merkel and with support across the Italian political spectrum, Monti introduced a new property tax, raised the retirement age, and began streamlining employment rules and cutting red tape in sectors including energy. Critics, however, attribute the dose of austerity as deepening Italy’s painful recession.
Monti announced plans to resign after former Prime Minister Silvio Berlusconi’s People of Liberty party withdrew its support from his coalition. He will stay on as a caretaker prime minister until the elections.
Monti’s decision to enter what is sure to be a contentious campaign is a leap into uncertain territory. A year of austerity and recession has left him unpopular with voters; 61 percent of respondents in one poll said he should not run.
Just after Monti’s resignation announcement, Zanni, the Credit Suisse analyst, said in a note that while “a political crisis is not what Italy requires the most at the moment and markets have already reacted” with some spread widening, the situation was not as worrying as it may have appeared at first glance.
The Credit Suisse report said Bersani’s center-left Democratic Party promised an essentially pro-Monti path, although the party looks more favorably than Monti has on policies designed to encourage growth and redistribution, similar to those espoused by France’s Socialists or Germany’s SPD. While the political situation is still volatile, Bersani’s embrace of the euro and the European Union mean a victory by the center-left should calm markets, the report predicted.
Berlusconi, who left office when Monti stepped in, has less than a 5 percent chance of returning to power, the Credit Suisse report said.
He and Monti have engaged in a bitter public back and forth in recent weeks.
“Last night I had a nightmare, I woke up screaming — there was still a Monti government,” Berlusconi said recently. Monti said he couldn’t imagine Italians electing the former center-right prime minister again “after seeing the damage he did to the Italian economy and the credibility of the country,” he told Italian daily La Republica, Reuters reported recently.
In a 25-page agenda called “Change Italy, Reform Europe” unveiled at his end of year press conference on December 23, Monti laid out his vision for tackling Italy’s hefty public debt and ending the recession. He told Italians he hoped his ideas for attracting more foreign investment, funding research, and cracking down on corruption would help shape the campaign debate.
“The traditional split between left and right has historic and symbolic value” for Italy, Monti said in a news conference announcing his decision to run. “But it does not highlight the real alliance that Italy needs – one that focuses on Europe, and on reforms.”
Photo courtesy of: Flickr – European Parliament