Italy’s Monti Open to Broad Coalition, Left Surges

Italian prime minister Mario Monti in Paris, France, August 3, 2012
Italian prime minister Mario Monti in Paris, France, August 3, 2012 (Elysée)

Italy’s technocrat prime minister Mario Monti said in a radio interview on Friday that he was willing to consider a broad coalition with Silvio Berlusconi’s conservative party, provided the former premier wasn’t part of it. Meanwhile, the left-wing Partito Democratico continued to rise in preelection polls which give it a plurality of the seats in both chambers of parliament.

Monti, a former European commissioner who replaced Berlusconi in November 2011 when the country appeared to teeter on the brink of sovereign default, said he had “no intention of making any agreement with parties that aren’t strongly reformist.” Berlusconi’s lackluster policy response to the European sovereign debt crisis was widely seen a little over a year ago as responsible for threatening to engulf Italy in it.

However, since Monti enacted austerity measures, including spending cuts but mostly tax increases, as well as labor market and pension reforms, many Italians have reconsidered. Berlusconi, who is leading the right-wing Il Popolo della Libertà into next month’s election, has improved his poll numbers by rallying against “German” austerity and the European Central Bank’s unwillingness to finance Italian deficit spending.

On the left, the Euroskeptic Five Star Movement has emerged as a strong contender with a similar massage, although the Partito Democratico‘s rise has sapped it of its previous 20 percent approval, down to 12 percent in a recent poll.

Monti, who enjoys the backing of a coalition of centrist parties in the election, urged Italians to stay the course. If Berlusconi were to resign, “one could easily imagine a collaboration” with Il Popolo della Libertà, he said. The party as well as Partito Democratico supported his government all through last year.

The conservative party’s secretary Angelino Alfano seemed appalled by the statement. “If there is anything that needs to be cleansed from Italy, it is Monti and his caretaker government,” he argued.

Il Popolo della Libertà pulled its support from Monti’s cabinet in December of last year, citing a collapse in home sales, economic contraction, raised taxes and the labor market reforms that were watered down under pressure from the left and its trade union supporters.

The left is nevertheless in the best position to claim the prime ministership and lead the country’s next coalition. A recent Demos survey gave it 35 percent of the seats even in the Senate where it has previously struggled to win a plurality. Berlusconi’s party is at 18 percent and Monti’s supporters at 16. Lega Nord, the secessionist party that backed Berlusconi’s previous governments, gets 6 percent in another poll. Nearly one out of three Italian voters are still undecided. Many of them voted for the conservatives in 2008.

Monti, Rutte Advocate Transatlantic Trade Zone

Italian prime minister Mario Monti speaks at the World Economic Forum in Davos, Switzerland, January 23
Italian prime minister Mario Monti speaks at the World Economic Forum in Davos, Switzerland, January 23 (World Economic Forum/Sebastian Derungs)

Italian and Dutch prime ministers Mario Monti and Mark Rutte argued in favor of a transatlantic free-trade agreement between Europe and the United States on Thursday.

The leaders participated in a panel discussion at the World Economic Forum in Davos, Switzerland about future economic growth in Europe.

Rutte, who leads a centrist coalition in the Netherlands, argued that a strengthening of the European single market could produce 4 percent extra growth in gross domestic product over the next ten years. “If we would finally be able to close a foreign trade agreement with Japan, with the United States, we could add another 2 percent,” he said.

Asked about the chances of cementing a transatlantic free-trade area in the next couple of years, the Dutch premier said “it is possible to come to an agreement.” Even if the United States are shifting their economic and strategic emphasis to Asia, “to be effective in this relationship between the United States and Asia, they have to work very well together with Europe,” according to Rutte. “We should have [had] this years ago.”

Monti, who faces an election next month in which polls predict he will be replaced by the left-wing prime ministerial candidate, agreed that it is “crucial” to expand trade relations between Europe and the United States. “I think it will require important adjustments in policies on both sides of the Atlantic,” he admitted, particularly in agriculture which is heavily subsidized in both the European Union and the United States. “But I think it will eventually be done.”

The left in Italy as well as France, where President François Hollande’s Socialists are in power, will be hesitant to cut farm subsidies, however, especially if Northern European countries like Germany, the Netherlands and the United Kingdom push for further expansion of the single market which Mediterranean governments, more prone to protectionism, regard as a threat to their own, less competitive service industries.

The Dutch leader told the Davos forum that he was “frustrated” about the lack of debate about growth in European Council meetings where the continent’s sovereign debt crisis has dominated the agenda for more than two years. “We should move to spend more time on these issues of getting growth going,” he argued. “Therefore we need countries like Denmark, Sweden and the United Kingdom […] to stay not only in the European Union but to be active” in it, as they are less obsessed about solving the problems of a single currency union to which they do not belong, rather about maintaining economic competitiveness in a globalized world.

Italy’s Left Tops Prime Ministerial Poll, Monti Second

Pier Luigi Bersani addresses a conference of the Partito Democratico in Varese, Italy, October 9, 2010
Pier Luigi Bersani addresses a conference of the Partito Democratico in Varese, Italy, October 9, 2010 (Francesca Minonne)

A CISE preelection survey published in the Italian newspaper Il Sole 24 Ore on Sunday found the country’s left-wing leader Pier Luigi Bersani in the lead to win the premiership. Incumbent technocrat Mario Monti, who announced on Friday that he will stand in February’s election representing a coalition of centrist parties, came in second with former prime minister Silvio Berlusconi in third place.

Berlusconi, who hopes to return to government for a fourth time, has managed boost support for his right-wing Il Popolo della Libertà in recent weeks with a fierce anti-German campaign and overtaken comic Beppe Grillo’s Euroskeptic Five Star movement as third party in the polls. Many Italians blame Germany for the austerity measures that Monti has imposed on them.

On Saturday, the former premier accused Monti, who replaced him in November of last year when Italy teetered on the brink of sovereign bankruptcy, of plotting with the left but centrist leaders denied an accord. “Our initiative was not born with the support of the PD,” said Pier Ferdinando Casini, head of the Christian Democrats, referring to Bersani’s Partito Democratico. “Until election day what’s important is aiming for the majority.”

Even if the left wins a majority in the lower house of parliament, Bersani will likely need the support of centrist parties in the Senate to form a government. Both the Partito Democratico and Berlusconi’s Il Popolo della Libertà backed Monti’s economic and fiscal reform efforts in the last year until the latter withdrew its support from the technocrat’s cabinet in early December. The left has pledged to continue Monti’s program but with a stronger emphasis on job growth. Berlusconi has promised to scrap an unpopular property tax and threatened to leave the European single currency union unless Germany responds to Italian demands.

“Either Germany understands that the ECB must act as a real central bank and therefore print money or unfortunately we will be forced to leave the euro and return to our currency,” he said in a television interview two weeks ago.

Few Italians want to leave the eurozone but just as few want to continue the austerity program of the Monti government, even if in terms of liberalizing the economy it has been markedly lackluster. The former European commissioner has shrunk the deficit by raising taxes and reducing spending, particularly subsidies to local governments, but proposed labor market reforms were watered down under pressure from the left while attempts to liberalize industries met fierce resistance from entrenched business interests.

Monti nevertheless enjoys the support of the business community as well as the nation’s Catholic church. Berlusconi’s support is strongest in the south which has long been the poorest part of the country.

Monti Failed to Thoroughly Liberalize Italy’s Economy

Italian prime minister Mario Monti with the head of the European Central Bank, Mario Draghi, during a European Council meeting in Brussels, May 14 (The Council of the European Union)
Italian prime minister Mario Monti with the head of the European Central Bank, Mario Draghi, during a European Council meeting in Brussels, May 14 (The Council of the European Union)

Italy’s technocratic prime minister Mario Monti formally tendered his resignation on Friday after the country’s largest conservative party had withdrawn its support from his government. Monti announced on Sunday that he is willing to resume his premiership if there is ample political support for him after February’s election but a majority of Italians would not like to see him come back.

When the former European commissioner became prime minister in November of last year, his country teetered on the brink of sovereign default and Monti was hailed both at home and abroad as the man who would save it from financial ruin. He proposed tough budget as well as economic and pension reforms that were designed to stabilize Italy’s debt and improve its competitiveness relative to other members of the eurozone.

But more than a year after Monti began his work, little progress for the long term has been made.

Monti’s cabinet has raised property and value-added taxes and achieved savings by raising the retirement age and cutting public-sector pay and subsidies to local governments, thus putting the budget on a more sustainable trajectory, but the announced economic reforms have been tepid.

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. Trade unions and the left-wing Partito Democratico, which is likely to win next year’s election, were angered by a cabinet proposal to remove the obligation on the part of businesses to rehire workers that are deemed by a 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.

Monti intended to liberalize the drug and taxi markets and open up the field for notaries and lawyers but has had to water down his proposals in all of these areas. Thousands of more drugstores were supposed to be added and the plan was for them to be able to sell prescription medicines independently. But under pressure from pharmacies, the government pulled its plans. Aspiring pharmacists now still have to prove a “tradition” to open a drugstore. As a consequence, it’s virtually impossible except for the children of active pharmacists to enter the profession.

Taxi drivers and petrol stations similarly resisted most efforts to economize. Plans to lift professional restrictions on attorneys were halfhearted. Minimum tariffs imposed by the previous government, led by Silvio Berlusconi, were abolished but in order to compensate lawyers, a maximum has been set on the number that can be employed in the industry, making it even harder for law graduates to start a business.

Italy’s judicial system is among the most bloated in the world. It employs some 211.000 lawyers compared to 155.000 in Germany which has twenty million more citizens. Trials take up to 1,000 days on average and can be susceptible to political interference, forcing companies to often settle out of court.

Retailers have been the only real beneficiaries of Monti’s liberalization program. Legally mandated shop hours and sales periods have been abolished, if to the chagrin of small businesses who fear that they will not be able to compete with chain stores.

A small coalition of centrist parties supports Monti returning as premier after February’s vote. However, unless Silvio Berlusconi, who is once again the prime ministerial candidate for the right-wing Il Popolo della Libertà, manages to upset the polls and return to parliament with a plurality of the seats, left-wing leader Pier Luigi Bersani looks likely to succeed the technocrat at the helm of the world’s eighth largest economy.

Berlusconi Blames Monti for Recession, Toeing German Line

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.

Italy’s Monti to Resign After Berlusconi Pulls Support

Italian prime minister Mario Monti addresses parliament in Rome, June 13
Italian prime minister Mario Monti addresses parliament in Rome, June 13 (Mario Sayadi)

Italy’s technocratic prime minister, Mario Monti, has said he will resign after a budget law was passed in parliament without the support of former prime minister Silvio Berlusconi’s conservatives.

Berlusconi announced on Friday he would stand in the next election, claiming to have been “besieged by requests” from right-wing party members.

“I cannot let my country fall into a recessive spiral without end,” he said. “It’s not possible to go on like this.”

Monti’s decision is likely to trigger parliamentary elections before his mandate expires in April, possibly as early as February of next year.

Berlusconi in a corner

Berlusconi’s Il Popolo della Libertà withdrew its support from Monti’s cabinet before the weekend, citing a collapse in home sales, economic contraction and rising taxes. Party leader Angelino Alfano singled out tepid labor market reforms which he claimed Monti had watered down under pressure from the left-wing Partito Democratico — which still does support his government — and the powerful trade unions.

Il Popolo della Libertà and the Partito Democratico, which between them command supermajorities in both chambers of parliament, have backed Monti’s reforms since Berlusconi was forced to resign last year at a time when Italy teetered on the brink of sovereign default.

Berlusconi was also embroiled in corruption and sex scandals. A law introduced by the Monti government last week would prohibit politicians who have been convicted of a crime by two separate courts from holding office. Under it, Berlusconi, who is facing three trials, would not be eligible to become prime minister again if he is convicted.

His party insists that the law was no reason for pulling its support, but the right has been hardest hit by recent corruption probes.

“Detonator”

In a pointed reference to Berlusconi’s previous administration, Monti warned on Saturday that Italy had to avoid becoming “the detonator that could blow up the eurozone” again.

The country is the third largest economy in Europe’s single currency union and its government the most heavily indebted after Greece’s. Italy’s public debt is equivalent to 126 percent of gross domestic product.

Berlusconi’s party is far behind in the polls. Recent surveys give it fewer seats than both the Partito Democratico and the Euroskeptic Five State Movement led by comic Beppe Grillo, giving left-wing leader Pier Luigi Bersani the best chance to claim the prime ministership.

Italy’s Monti Urges Political Support for Reforms

Prime Minister Mario Monti of Italy arrives for a European Council summit in Brussels, March 1 (The Council of the European Union)
Prime Minister Mario Monti of Italy arrives for a European Council summit in Brussels, March 1 (The Council of the European Union)

Italy’s technocratic prime minister Mario Monti urged political support for reforms on Wednesday to avoid the Southern European country becoming the next victim of the continent’s spiraling debt crisis. He knows that now is not the time for complacency.

Monti, who was appointed in November of last year, has enjoyed the support of both Italy’s main left- and right-wing parties to implement austerity measures that were deemed necessary to stave off a debt crisis.

The country’s public debt stands at over 120 percent of gross domestic product and it continues to struggle to borrow at an affordable rate on financial markets.

Pension reductions, spending cuts and tax hikes have undermined Monti’s approval rating. The political parties that keep him in power both lost heavily in May’s local elections and are wary of voting for the market reforms proposed by Monti to make Italy more competitive relative to other economies in the eurozone.

The prime minister asked parliamentarians on Wednesday to press ahead with liberalizations. “We should use these new difficulties to double our efforts both on the European front and within Italian politics,” he said.

In March, Monti’s government was forced to delay labor reforms that would have lifted restrictions on a number of professions and made it easier for firms to lay off workers. Italy’s largest trade union and the left-wing Democratic Party were both 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.

Because Italian workers tend to appeal layoffs, labor decisions are often mired in years of legal battles in the nation’s notoriously slow legal system.

The Democratic Party has otherwise supported Monti’s reform agenda, including a raise in the retirement age. The right-wing Il Popolo della Libertà (“The People of Freedom”), former prime minister Silvio Berlusconi’s party, favors labor market reform but is increasingly uncomfortable with Monti’s deficit reduction efforts

Capital markets are reacting negatively to the erosion in popular support for Monti’s reform agenda and uncertainty about what government will replace his after the 2013 election. If the country’s fractured political system fails to deliver consensus on how to reduce high government spending and increase economic growth, interest rates on Italian sovereign bonds will likely continue to rise.

The Open Europe think tank calculated that if Italy has to roll over expiring debt at present interest rates, it could cost it an extra €38 billion over the next three years and up to nearly €60 billion over the next five which would undo all of Monti’s budget savings by 2014.

All the same, an Italian financial crisis seems unlikely. Its bank are solid. They have little external exposure to other high debt countries in the periphery of the single currency union and a solid deposit base. Italians corporations and households are not heavily indebted. The private sector, though lagging behind in terms of productivity to other European countries’, is not in a crisis comparable to Greece’s and Spain’s. Italy still has time but it cannot afford to waste it.