Facing Crisis, Technocrats Take Charge in Italy
Tony Gentile/Reuters
Mario Monti, Italy’s prime minister-designate, spoke with reporters at the end of a meeting with President Giorgio Napolitano at the Quirinale Palace in Rome on Wednesday.
By RACHEL DONADIO and ELISABETTA POVOLEDO
Published: November 16, 2011
ROME — As dubious European bond markets looked on, a former member of the European Commission and well-respected economist,Mario Monti, was sworn in as prime minister and finance minister on Wednesday, unveiling a cabinet of technocrats charged with repairingItaly’s ailing economy to help keep the debt crisis at bay.
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While the new government was widely hailed as a welcome sign that Italy would tackle much-needed economic restructuring, markets were not convinced, raising questions about whether it might have come too late to help.
With a consensus developing that Italy is doomed to adevastating default in the absence of extraordinary new measures from its partners in the euro zone, investors drove Italian borrowing rates above 7 percent on 10-year bonds, a rate that is regarded as unsustainable. At that level, economists say, Italy would have to run a budget surplus of 5 percent of gross domestic product just to avoid going deeper into debt.
More troublingly, yields on French bonds were also rising this week, indicating that the debt crisis is overwhelming the halting efforts of European leaders to contain it. While Mr. Monti was being sworn in, France and Germany continued to clash over whether the European Central Bank should intervene more forcefully to bring down interest rates, particularly in Italy.
Europe is seen as facing a critical moment when it opts for either the deeper political integration that experts say is needed for the currency union to succeed, or breaking apart. On Wednesday, the president of the European Commission, José Manuel Barroso, spoke forcefully in favor of greater integration.
Warning of a “truly systemic crisis” in Europe, he said that states would need to accept “full discipline, full convergence, full integration.” He also warned that the crisis could not be solved without more sustained economic growth.
In Italy, Mr. Monti will have a weighty double mandate: to help restore growth and prod Europe to find a more comprehensive solution to the debt crisis.
Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France both called Mr. Monti on Wednesday to express their support, Italian news media reported, and Mr. Monti is seen as a more respectable interlocutor than his predecessor, Silvio Berlusconi. But Mr. Monti must still win the confidence of investors in the face of Italy’s $2.6 trillion debt, the highest in the euro zone after Greece and one of the highest in the world.
The new Italian government “is certainly an improvement on the previous one, there’s no doubt about that, and I think people can have confidence in Mario Monti,” said Paul De Grauwe, an economist at the University of Leuven and a former adviser to the European Commission. “The problem is that this may not satisfy markets.”
Mr. Monti will have his work cut out for him. He is expected to try to 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.
Business leaders applauded. “For us he is the right person to restore credibility, to put Italy on track again,” said Emma Marcegaglia, the president of Confindustria, Italy’s business association. “It’s a good list of people; they are capable, serious professionals,” she said of the cabinet.
“Monti clearly knows what has to be done,” Ms. Marcegaglia added. “The big challenge will be getting Parliament to approve this.”
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.
The center-left in Parliament has close ties to labor unions and might therefore block privatizations and changes in labor laws, while some in the center-right party of Mr. Berlusconi have accused Mr. Monti of pulling off a market-driven coup d’état and are looking for any chance to force early elections and a return to democratic processes.
Mr. Monti is expected to win confidence votes in Parliament on Thursday and Friday and has said he intends to govern through to the next scheduled elections, in 2013, but doubts remain about whether he will survive that long.
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.
Corrado Passera, the chief executive of Italy’s biggest retail bank, was named minister for economic development and transport, and Mr. Monti added that women would lead three of the “most important ministries”: interior, justice, and labor and welfare. But even if Mr. Monti succeeds in pushing through structural changes, some of Italy’s woes are beyond its control. A growing chorus of politicians, business leaders and economists say the only way to shore up the euro — and prevent Italy from default — is for the European Central Bank to become a lender of last resort, like the Federal Reserve.
Charles Grant, the director of the Center for European Reform, a London research institute, said that Italy could be saved from the precipice by a Monti government “acting and showing it can do all the right things” and a “German shift” toward allowing the current bailout mechanism to borrow from the European Central Bank.
However things work out, Mr. Monti is widely seen here as Italy’s best hope. “It could be too late, but there’s no other option,” said Massimo Giannini, the deputy editor and business editor of the newspaper La Repubblica. “Let’s hope for the best.”
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