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Wednesday, December 19, 2012

Silvio mentions euro exit (again), but everyone is waiting for Mario: An update on Italy

Time for a quick update on Italy, with Silvio Berlusconi and Mario Monti in the spotlight again. Over the past few days, Berlusconi's air time has increased exponentially. The gist of his interviews remains broadly the same (see our previous posts here and here). Yesterday, on Italian public broadcaster Rai Uno, he said,
"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."
Believe it or not, his anti-German rhetoric is paying off. Several opinion polls indicate that support for Berlusconi's party is on the rise - although it remains well behind the clear front-runner, the centre-left Democratic Party. This explains why Il Cavaliere is now urging not to "rush" to the elections - suggesting that the vote should be postponed by 1-2 weeks, to 24 February or even 3 March. Perhaps he believes that two extra weeks of electoral campaigning could make a big difference.

Therefore, it is no surprise that Berlusconi's MPs and Senators are now using all possible parliamentary tactics to delay the final approval of the budget law for 2013-15 - which amounts to pushing Monti's resignation back. For the moment, Monti has postponed his end-of-year press conference, initially due on Friday - probably a sign that the budget law will not be adopted by then.

In the meantime, uncertainty remains over what Monti will do after his resignation. According to Italian daily La Stampa, he has decided to stay out of the race, while at the same time making a strong endorsement for a group of small centre parties supportive of his reform agenda as early as this weekend (see our overview for further details about where Italy's main political parties stand ahead of the elections). 

From outside the electoral race, the article suggests, Monti would have the possibility to act as a mediator and facilitate an alliance between those centre parties and the Democratic Party. Sounds plausible, and it might turn out to be a good idea for at least two reasons:
  • Opinion polls show that the Democratic Party and the smaller centre parties - that is, the political forces which have pledged to continue with Monti's reforms - would together have the numbers to build a stable government. However, the possibility of them forming a coalition cannot be taken for granted at the moment. Monti's clout could give a decisive push in this direction - which would in principle be good news for Italy and the rest of the eurozone.
  • Monti's candidacy would not be risk-free. In particular, it may 'personalise' the electoral campaign too much and turn the upcoming elections into a referendum on Monti himself, rather than his reforms - which are what ultimately matters for Italy's future.
We will continue monitoring the situation closely, so keep following us on Twitter @OpenEurope for real time updates.


Rollo said...

He is only saying what Hollande and others are saying: either Germany has to accept transfering huge amounts of money into other people's economies, or the Euro will fail; because few of the other countries can live in the same Euro as Germany.
Funny if, in the end, the European nations are saved by Berlusconi.
Who is paying for Greece? Who is going to subsidise Spain? Who will bail out Italy?

Rollo said...

Meanwhile, with Italy, Spain and France facing funding costs of €332bn, €195bn and €243bn respectively, markets will be kept on edge.
See what I mean, in your own words?

Anonymous said...

I'd say it'll be up to the Italian people eventually: whether to vent thru the polls their own enthusiastic support for additional tax burdens and go on with the Monti cabinet austerity agenda, as purported by the media, or reject it. A first chance of true democracy despite hidden vested interests conspiring against?

Rik said...

Monti is by far the best person to guide Italy through this part of the crisis. By far the best understanding where things have to be adjusted and with by far again the most credit by EZ partners and markets.

However credit is definitely not perpetual. Furthermore he needs political backing to make the reforms (which has been a problem the last 1/2 year or so).
No use for him to step in if he is not backed to do structural reforms. Otherwise he will be the figurehead of a disaster. You need Monti and backing, Monti alone is not enough.

I doubt (although not aware of all the ins and outs of Italian politics) if running for one party will give him a bigger chance to get structural majority backing.
The country simply doesnot seem ready for structural reforms.
Probably make a later return when the country/politics are ready more difficult.

Difficult call.

Rollo said...

Structural reforms or not, Italy will never be able to live in the Euro. They will always be a poor set of regions; unless of course the Lega Norte, the only sustainable bit, leaves Italy. Then the rump 3/4 of the country will fail to live in the Euro.