Berlusconi Blames Monti for Recession, Toeing German Line

The former prime minister ties to tap into Italians’ mounting Euroskepticism.

Chancellor Angela Merkel of Germany and Prime Minister Mario Monti of Italy in Rome, July 5
Chancellor Angela Merkel of Germany and Prime Minister Mario Monti of Italy in Rome, July 5 (Bundesregierung)

Italy’s right-wing leader Silvio Berlusconi accused the incumbent prime minister Mario Monti of dragging Italy into recession by toeing to the German line on austerity policies.

Monti announced his resignation this week after Berlusconi’s conservative party withdrew its support from this technocrat government, triggering elections which could take place as early as February. Berlusconi is expected to be the prime ministerial candidate for Il Popolo della Libertà, the party he launched in 2007.

Berlusconi was forced to resign the premiership in November of last year when Italy teetered on the brink of sovereign default. Monti has since enacted tough budget and pension reforms to mend the fiscal shortfall as well as labor market reforms to enhance Italian competitiveness relative to other countries in the eurozone.

The austerity policies have not been popular, however. The septuagenarian but ever flamboyant Berlusconi tries to persuade Italian voters that there’s an easier way out. He told Canale 5 on Tuesday that the country’s borrowing costs, which are an indicator of investors’ trust in its ability to pay back its debt, are irrelevant. “Who cares about how much interest we pay to people who invest in our [debt] obligations compared to what is paid to investors who invest in German public debt?” he wondered.

The former premier previously suggested that it would “not be the end of the world” for either Germany or Italy to leave the currency union. In the Canale 5 interview, he touted his willingness to stand up to Germany which is seen by many Southern Europeans as imposing unnecessarily drastic economic and fiscal changes on their nations.

I was one of the two, three most influential leaders in the European Council [but] I continuously opposed German proposals and demands. I said “no” when Mrs Merkel was demanding that Greece suffered cuts which, in my opinion, would have brought Greece — as it then happened — almost to civil war. […] I said “no” to the fiscal pact and I even used the veto to flag up that Italy could not commit to reducing its debt by €50 billion per year.

Almost immediately after taking office, Monti, a former European commissioner, committed to €10 billion in tax hikes and some €20 billion in savings, accomplished through increases in the property and value-added taxes, a raise in the retirement age and public-sector pay cuts. Central government subsidies to the regions were also cut to the chagrin of local party bosses.

Whereas Monti’s arrival was met with cautious optimism at home and in Europe, Italians’ patience soon wore thin.

In March, the government was forced to delay labor market reforms that would have lifted restrictions on a number of professions and made it easier for companies to lay off workers. The country’s largest trade union and the left-wing Partito Democratico — which is now on track to win February’s election — were angered by a cabinet proposal to remove the obligation on the part of businesses to rehire workers that are deemed by court to have been wrongfully fired.

Such rigid labor laws prevent Italian businesses from hiring and discourage foreign companies from setting up shop there. Even with the Monti government’s changes, conditions remain far more flexible in the creditworthy nations of the north of Europe.

Voters delivered another blow to Monti’s reform agenda in May when Il Popolo della Libertà, which supported his government, was decimated in local elections. The Partito Democratico also slipped in the polls but mildly.

Conservative parliamentarians started to complain that Monti wasn’t doing enough to rein in the power of the Italian trade unions. Party chief Angelino Alfano particularly cited the tepid labor market reforms before the weekend as a reason to pull the plug on the technocratic experiment, along with a collapse in home sales and raised taxes.

Meanwhile, another Euroskeptic party, comedian Beppe Grillo’s Five Star Movement, has risen in the polls. In recent surveys, it gets more votes than Berlusconi’s conservative party. Like the separatist Lega Nord, Grillo’s movement opposes austerity and supports a referendum on Italy’s euro membership. Between them, the three parties could get 40 percent of the votes in February’s election but because of the complicated Italian voting system, they might win even relatively seats in the legislature.

Monti has vowed not to return to the premiership unless the election returns a parliament that is unable to form a stable coalition. Recent polls suggest that there will be a comfortable left-wing majority but that includes far-left parties which might not be Euroskeptic but are certainly opposed to what they see as right-wing austerity.

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