Berlusconi Blames Monti for Recession, Toeing German Line

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

German chancellor Angela Merkel and Italian prime minister Mario Monti speak in Berlin, August 29
German chancellor Angela Merkel and Italian prime minister Mario Monti speak in Berlin, August 29 (Bundesregierung)

Italy’s former prime minister, Silvio Berlusconi, has accused his successor, Mario Monti, of dragging Italy into recession by toeing the German line on austerity.

Monti resigned this week after Berlusconi’s conservatives withdrew their support from this government, triggering elections that could take place as early as February.

Berlusconi is expected to become the prime ministerial candidate for Il Popolo della Libertà, the party he launched in 2007.

Austerity

Berlusconi was forced to give up the premiership in November, when Italy teetered on the brink of sovereign default.

In the following months, Monti enacted tough budget and pension cuts to reduce Italy’s deficit.

He also initiated labor reforms to enhance Italian competitiveness relative to other nations in the eurozone.

“Who cares?”

The austerity program has not been popular. The septuagenarian, but ever flamboyant, Berlusconi is trying to persuade Italian voters there’s an easy way out.

He told Canale 5 on Tuesday that the country’s borrowing costs, which are an indicator of investors’ trust in Italy’s 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?

The former premier previously suggested it would “not be the end of the world” for either Germany or Italy to leave the currency union.

Standing up to Merkel

In the Canale 5 interview, Berlusconi touted his willingness to stand up to Germany, which is seen by many Southern Europeans as imposing unnecessarily drastic economic and fiscal changes:

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.

Soon after taking office, Monti, a former European commissioner, committed to €10 billion in tax hikes and around €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 regions were also cut, to the chagrin of local party bosses.

Out of patience

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

In March, the government was forced to delay labor reforms that would have lifted restrictions on a number of professions and made it easier for companies to fire workers.

The largest trade union and the left-wing Democratic Party — which is now on track to win February’s election — were angered by a proposal to remove the obligation on the part of businesses to rehire workers who are deemed by a judge to have been wrongfully fired.

Such rigid labor laws prevent Italian businesses from hiring and discourage foreign companies from setting up shop in the country.

Even with Monti’s reforms, conditions remain far more flexible in the creditworthy nations of northern Europe.

Conservatives decimated

Voters delivered another blow to Monti’s reform agenda in May, when Berlusconi’s party, which supported his government, was decimated in local elections.

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

Five Star menace

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 party.

Like the separatist Northern League, 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.

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 there will be a comfortable left-wing majority, but that includes far-left parties that reject austerity.

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