Can the real Super Mario please stand up?

Former Italian Prime Minister Mario Monti may be out of Italian politics, but it's fair to say he still likes to talk - especially when travelling abroad.

In an interview with Belgian daily De Morgen and Dutch daily De Volkskrant, Monti seems to hint at what many Bundesbank-fearing Germans already suspected: that the ECB's pledge to do "whatever it takes" (i.e. the OMT, the new bond-buying scheme) was de facto grounded in a political decision - contrary to what the ECB's mandate dictates.

Here is what Monti said in the interview:

[At the June 2012 European Council], I have used my full negotiating position in order to get a line approved that looks boring at first glance. At 4 am, the signatures of all leaders had been provided, including the ones of [German Chancellor Angela] Merkel, of my good friend the Dutch Prime Minister Mark Rutte, and of Finnish Prime Minister Jyrki Katainen, you can say the monetary firepower from the North [...] The line established, in short, that eurozone countries who did their homework, like Italy, were guaranteed ECB support. That statement – at the highest political level – didn’t impress the markets, because the leaders did have the authority, but no money. One month later, ECB President Mario Draghi came out with his famous statement: the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. That did calm the markets, because Draghi did have the money. 

Monti is clearly trying to claim some credit - and the headline of the interview in De Volkskrant is actually "Mario Monti: the man who saved Europe". However, if Monti is right, it clearly means that the ECB's political independence was seriously compromised, since, strictly speaking, there should be no link whatsoever between a political agreement and ECB action..

Draghi's statement is one of the main reasons behind the fall in borrowing costs for countries in the eurozone periphery - some of which have yet to deliver on real economic reform. Monti may have given Draghi some of the credit - but he has also given fuel to those Germans who fear the ECB's independence is a thing of the past.

The election of the new Italian President: Has Silvio just scored another one?

The Italian parliament starts voting to elect the new President of the Republic today. Centre-left leader Pier Luigi Bersani has agreed with Silvio Berlusconi and Mario Monti to back the candidacy of Franco Marini - an 80 years old, pipe-smoking former trade unionist and Senate speaker (see picture).

Bersani faced a clear political choice. He could either support the candidate put forward by Beppe Grillo's Five-Star Movement (law professor Stefano Rodotà) or go for a more Silvio-friendly name. The decision to back Marini is a clear sign that Bersani does not want to burn all the bridges with Il Cavaliere - given that talks on the formation of the new Italian government will resume after the election of the new President.

However, Bersani may have overlooked the knock-on effects of the decision in his own camp. This is what happened after he told his party about his decision yesterday:

• The party split over Marini's candidacy. Florence Mayor Matteo Renzi, regarded by many as Bersani's successor as party leader, called Marini "a candidate from the past century". Italian papers estimate that up to 90-100 members of Bersani's party will not vote for Marini.

• Bersani's left-wing ally Nichi Vendola said Marini's candidacy was "the end of the centre-left". His MPs will vote for Grillo's man instead.

Needless to say, all this plays into Berlusconi's hands. His centre-right alliance looks far more united at the moment, and is ahead in opinion polls. If Marini is elected as President and the split in the centre-left remains (admittedly two big ifs), Il Cavaliere could be tempted to push seriously for a return to the polls - this time with a good chance of victory.

Finally, a quick reminder of how the voting works. There are 1007 'great electors' (all the 630 MPs + all the 319 Senators + 58 regional delegates). There will be two ballots a day - the first one is currently under way. A two-third majority (672 votes) is required in the first three ballots. A simple majority is sufficient from the fourth ballot on.

Ballots are secret, so it's hard to predict whether Marini will make it in one of the first three ballots. Expect the vote to be very tight anyway. If Marini fails to achieve the two-thirds majority, Bersani may consider putting forward another name to try and repair some of the damage made to his party.

Follow us on Twitter @OpenEurope and @LondonerVince for all the updates on the vote.    

Shocker in Italy: A comedian-cum-politician wins twice as many seats as the 'Brussels candidate'

So we now have a pretty good idea of the election results in Italy. And there are two victims: eurozone stability and Mario Monti.

The winner: comedian-cum-politician Beppe Grillo. 

We knew from earlier today that there would be a hung Senate, meaning massive challenges ahead in forming a functioning government.

But what about the Lower House - Camera dei Deputati? Well, counting is almost completed so these projections of how seats will be allocated (courtesy of Rai) will most likely be very close to the final results. Bersani's centre-left coalition managed to secure a majority. The gap between Bersani's centre-left coalition and Berlusconi's centre-right coalition is around 0.4%, so the huge difference in seats is due to Italy's electoral system (which gives the coalition or party with the most votes an automatic majority of almost 54%). 

But this is the shocker: Beppe Grillo's Five-Star Movement - the party that came out of nowhere and whose leader wants to hold a referendum on both euro membership and the restructuring of the country's debt - looks set to become the largest party in the lower house, and the second-largest one in the Senate. This is exceeding all expectations (though we warned you!).

Grillo is going to win 110 seats, more than double those of  Mario Monti - the outgoing technocrat PM who was the clear favourite in Berlin and Brussels. Monti will only have 46 MPs at his disposal.

The scale of this defeat was pretty obvious at the press conference that Monti gave earlier today, in which he said he was "very satisfied" with the election results but was visibly emotional.

In contrast, a relaxed but triumphant Grillo chucked about "having another hot tea and then going to bed" when interviewed by 'La Cosa' - the Five Star Movement's official radio/TV station.

That so many Italians voted for anti-austerity parties also bodes ill for the ability of the eurozone to press ahead with its cash-for-discipline recipe. We will provide a more detailed analysis once the final results are in. But for now at least, there's no doubt about who's having the last laugh...

N.B.: The breakdown above does not include the 12 MPs elected by Italians residing abroad and the MP elected in the Valle d'Aosta region, who are subject to different rules - a small caveat which does not change the bigger picture.

Will German anti-Berlusconi rethoric actually boost Silvio's chances?

Mario Monti has never claimed to be a professional politician. His lack of political experience became evident when he said,

[German Chancellor Angela] Merkel fears the success of left-wing parties [in Italy], especially in an election year for her. I don't think she has any desire to see [Pier Luigi Bersani's] Democratic Party arrive in government.

Merkel's spokesman, Steffen Seibert, quickly shot Monti down.The German Chancellor "has not made comments on the Italian elections. Nor did she do any in the past", he said.

Though it may seem like a minor event, the Italian press was all over it. And it's interesting as it may play straight into Silvio Berlusconi's hands. The man has built his election campaign on strong and uncompromising anti-German austerity rhetoric. He might be minded to ask if Monti cares more about Merkel than Italian voters?

This also illustrates how potentially counterproductive it is for German politicians to wade into the Italian election debate. Merkel may not endorse a candidate, but it is pretty obvious who the Germans don't want to see in power.

German Finance Minister Wolfgang Schäuble told Italian weekly L'Espresso,

I know very well that Silvio Berlusconi is a very effective electoral strategist. However, I'm convinced that Italians are clever enough not to make the mistake of voting for him again.

Another senior member of Merkel's CDU, Ruprecht Polenz, who chairs the Foreign Affairs Committee in the Bundestag, said,

Italy needs leadership for the future. Berlusconi does certainly not represent that.

Foreign Minister Guido Westerwelle did not name Il Cavaliere, but told Süddeutsche Zeitung,

Whoever forms the new [Italian] government, we count on the pro-European course and the necessary reforms to continue.

The more extraordinary since these politicians are all supposed to be Berlusconi's 'fellow' centre-right politicians. Now, the big question is, will this kind of stuff coming out of Germany boost or reduce Berlusconi's chances, given that it fits perfectly within his narrative that Italy is being kicked around by Berlin? Remember when a whole host of Europeans lined up to oppose George W. Bush (not that we compare the two) in 2004, acting as the ideal recruitment sergeants for the Bush campaign...

If you want to know what we think about Berlusconi, the Italian elections and what they mean for the future of the eurozone, check out our new briefing outlining a number of post-election scenarios. And follow us on Twitter @OpenEurope or @LondonerVince for real-time updates from Italy.  

Italian elections: The scandal-watch

Election season means scandal season in Italian politics. Less than two weeks to go to the elections, and a number of scandals are surfacing on the Italian peninsula (not entirely coincidental we think) which could undercut support for the 'establishment' parties in particular - and possible give comedian-cum-politican Beppe Grillo a boost.

Support for the centre-left Democratic Party has been dropping over recent weeks in part due to the big derivatives scandal involving Italian bank Monte dei Paschi di Siena - an institution with historical links with the local government in Siena, in the hands of the centre-left for years.

Two more scandals erupted over the past two days. Raffaele Fitto, a former Italian minister and a top member of Silvio Berlusconi's PdL party, has been sentenced to four years in prison for corruption, illegal financing of political parties and abuse of authority. This is a big blow for Berlusconi and his party, given that Fitto topped the list of PdL candidates in Italy's Southern Apulia region - of which he had previously been the Governor.

Separately, the CEO of Italy's defence giant Finmeccanica, Giuseppe Orsi (see picture), was arrested yesterday over bribery allegations relating to the sale of twelve military helicopters to India. The allegations cover the period from the awarding of the contract in 2010 - when Orsi was the CEO of Agusta Westland, owned by Finmeccanica - until December 2012. The Italian government holds about 30% of Finmeccanica's shares, and the question is whether someone within Mario Monti's cabinet knew what was going on, but failed to take appropriate action.

Orsi is also close to Lega Nord - Silvio Berlusconi's main ally. Last October, Italian daily Il Fatto Quotidiano published the transcript of a phone call between Orsi and Lega Nord leader Roberto Maroni, during which Orsi thanked Maroni for backing his appointment as CEO of Finmeccanica. Maroni has moved swiftly to deny any involvement in the story - and has threatened to sue anyone who claims otherwise. But this might still hurt Lega Nord in terms of votes.

It remains unclear if, and to what extent, these scandals will impact on the final election results. But one thing is clear: the Italian election campaign is heating up. Follow us on Twitter (here and here) for all the news and updates from Italy!    

EU budget talks: The dust has settled - and they all won!

We've been listening to the national press briefings of several EU leaders following the deal on the EU budget (which we analyse here). And you got it - they all won! (well, almost). Here goes:

David Cameron (UK)

• The British Prime Minister said, "I think the British public can be proud that we have cut the seven-year credit card limit for the European Union for the first time ever." 

• He went on, "The only way you can best protect the British taxpayer is to keep overall spending down, and that’s what we’ve done, and also to keep what remains of the rebate, and it is completely untouched." 

• On the possibility of MEPs staging a secret ballot vote on the next long-term EU budget, Cameron said, "Of course the European Parliament has a role, and we should respect that. But I don't really understand secret ballots. Parliaments and votes should be open, should be transparent, people should be accountable for how they cast their votes."

Angela Merkel (Germany)

• As usual, the German Chancellor - the power-broker - did not give away too much during her presser. She said, "The effort was worth it…in my view this agreement is good and important." 

• She also warned that "the negotiations with the European Parliament won't be easy".

François Hollande (France)

• The French President, a bit sulky, said this was "the best deal" on offer given the circumstances.

• He repeatedly stressed that the UK wanted payment appropriations to be lower than €900bn over seven years, while France was insisting on €913bn (see here if you are not familiar with the commitments vs payments distinction). According to Hollande, given that the final compromise was reached at €908.4bn, "Everyone will say who made the bigger step" - a way to suggest that David Cameron had given up more than he did.

• According to Hollande, France will also save some €140m a year on its financing of the various rebates. On the rebates, the French President made his most interesting remark (see here, around 16:00 in). He said, "I knew that there was no possibility to put into question the British rebate, because you know that it is provided for by the [EU] Treaties [which, by the way, is incorrect]. Therefore, it is immutable" at least until the Treaties are re-opened for negotiations. The British, he added, "should keep this in mind, including when they demand treaty changes." If this is not a threat, then what is?  

• He said that funding for agriculture has gone down overall, but he has made sure that aid to French farmers will remain at the same levels as in 2007-2013. Now, that's what you call 'solidarité', right?

• Finally, the French President admitted that the UK was not on its own in these negotiations, as "other countries wanted more for themselves and less for Europe".  

Mario Monti (Italy)

• The (caretaker) Italian Prime Minister hailed a "particularly significant improvement" in Italy's net position compared to other big net contributors to the EU budget.

• He said Italy has secured an extra €3.5bn in funding compared to the compromise proposal on the table at the November summit.

• Furthermore, Italy will save around €600m a year on its financing of the various rebates.

Mariano Rajoy (Spain)

• The Spanish Prime Minister said the deal is "very good for Spain". Contrary to expectations, Spain will remain a net recipient from the EU budget over 2014-2020 - which is huge. 

• Rajoy was particularly pleased by the fact that Spain "will get almost 30%" of the new fund for youth unemployment included in the next long-term EU budget. 

Mark Rutte (Netherlands)

• The Dutch Prime Minister opted for a lower profile. He said, "Of course you never completely get it your way with 27 member states, but I think that we as the Netherlands can be satisfied." 

• He described the deal as a "sober" budget, and said that the Netherlands "worked well together" with Sweden, Germany, Denmark, and the UK.  

Helle Thorning-Schmidt (Denmark)

• The Danish Prime Minister said her country "came here with three priorities, and we satisfied all of them", pointing out that she had secured an annual rebate of €130m.

Fredrik Reinfeldt (Sweden)

• The Swedish Prime Minister said the deal was "a surprisingly good result".

• He argued that, contrary to fears that Sweden's contribution to the EU budget would increase, it is, in fact, set to drop slightly.

Donald Tusk (Poland)

• The Polish Prime Minister spoke of "a huge success" for his country, stressing that Poland's receipts will increase by €4bn despite the long-term EU budget facing a €38bn cut from the previous seven-year period.

• He went even further, claiming today was "one of the happiest days of my life". Wow!

Werner Faymann (Austria)

• The Austrian Chancellor was less enthusiastic than many of his counterparts. He said the deal struck this afternoon is "presentable" for Austria - which managed to secure a rebate, although it will be phased out by 2016 (see the final deal here).

Petr Necas (Czech Republic)

• The Czech Prime Minister was pleased about his choice to threaten a veto. He said, "If the Czech Republic had not seriously threatened to block the negotiations, then it would not have been possible to negotiate a better outcome."

Italian elections: Il Cavaliere goes all-in

With the Italian elections only three weeks away, Silvio Berlusconi has gone all-in with a number of big electoral pledges. The most eye-catching are:

• Refund Italians for a levy on first homes (IMU) re-introduced by Mario Monti's technocratic government. Berlusconi had already pledged to scrap the tax, but has now raised the stakes further. 

• Scrap Italy's Regional Tax on Productive Activities (Irap, which is levied on businesses) within the next five years.

• Launch a full tax amnesty.

• Finalise a bilateral agreement with Switzerland allowing the Italian government to tax Swiss-based financial activities of Italian citizens. Berlusconi claims this would grant a one-off revenue of €25-30bn, and some €5bn a year.

• Scrap public financing of Italian political parties.

• Halve the number of parliamentarians (there are currently 630 MPs and 315 Senators).

• Cut public spending by a total €80bn in five years.

Responses have been mixed. After comparing Berlusconi to the 'Pied Piper of Hamelin', Mario Monti has this time likened him to a "snake charmer" - a clear reference to Il Cavaliere's poor record when it comes to keeping electoral promises. Giulio Tremonti, who served as a Finance Minister several times under Berlusconi (although the two did not always get along particularly well, see our blog from August 2011), also noted that the tax refund pledged by Berlusconi would create "objective problems" with Italy's public finances. Incidentally, Tremonti is not a great fan of the agreement with Switzerland either.

But there is only one reaction Berlusconi is interested in at this point in time: the Italian electorate's. And his populist rhetoric seems to be paying off on that front. According to the daily opinion polls carried out by Tecnè for Sky TG24, Berlusconi's PdL party continues to gain ground and is now on 20.4%. Crucially, these polls also show that the gap between the centre-left coalition led by Pier Luigi Bersani and Berlusconi's centre-right coalition has narrowed to only 4% (the two blocs are on 32.9% and 28.9% respectively). Tecnè will tomorrow release the first survey conducted after the big promises we listed above. We wait with interest.

In the meantime, the Italian stock market and borrowing costs seemed to have begun pricing in the potential for a Berlusconi victory - along with the broad added uncertainty of a close election and the recent bailout of Banca Monte dei Paschi di Siena. The FTSE MIB fell 4.5%, while borrowing costs edged up to 4.47%. With another three weeks before the elections, we could yet see a few more days like this.

The EU budget veto threat festival kicks off again

Remember our EU budget 'veto team'? Well, the next European Council summit - entirely devoted to negotiations over the 2014-2020 EU budget - is only one week away, and the sequence of veto threats may have just begun all over again.

Guess who fired the starting gun (clue: not David Cameron)? It was Italy's outgoing Prime Minister Mario Monti. He told a conference in Brussels yesterday,

“There would be no coherence between what everyone is saying about the need for growth and the adoption of an inadequate [long-term EU] budget…The orgy of cuts that certain countries want to apply is inconsistent. Therefore, I’m not sure that it would be irresponsible for a country to disagree with a budget proposal which is inadequate.” 

That is, a veto threat, Monti-style. This has just started, so keep following us on Twitter @OpenEurope for real-time updates.

Silvio's new(ish) electoral pledge: Renegotiate the fiscal treaty

Silvio Berlusconi yesterday stepped up his anti-austerity rhetoric another notch. During a quite heated exchange with Italian journalist Maurizio Belpietro on public broadcaster Rai Uno, Berlusconi made a new(ish) electoral pledge: renegotiate the European fiscal treaty.

Here is a translation of the most interesting bits (the full video, in Italian, is available here):

Belpietro: "There's a fiscal treaty which has been signed and ratified by Italy too..."

Berlusconi (interrupts): "No, no, no. We need to go and negotiate with the European Commission. And [we need to] negotiate without getting down on our knees before the European authorities."

[...]

Belpietro: "So would you overturn that agreement? Would you renegotiate it?"

Berlusconi: "Absolutely. Even at the cost of another vote [on the fiscal treaty] in the Italian parliament."  

Given Il Cavaliere's notorious obsession with 'the Communists', it is perhaps slightly ironic that he is now basically using the same arguments as the Socialist François Hollande during last year's French presidential campaign. As we stressed in previous blog posts, though, for the average Italian a promise to fight back EU-imposed austerity remains a powerful argument - and that is something which Berlusconi is well aware of.

Silvio is back, Mario is out: What lies ahead for Italy?

The past weekend was a particularly eventful one for Italian politics - and we followed it on Twitter @OpenEurope.

After lengthy talks with Italian President Giorgio Napolitano, Mario Monti has announced that he will step down as soon as the budget law for 2013-15 is passed. The announcement caught many off guard in Italy, but the situation had got to a point where Monti really had little choice - since he had de facto lost his majority in both chambers of the Italian parliament after Silvio Berlusconi's party withdrew its support. 

What happens next? A timeline

Monti's early resignation paves the way for early elections. The exact date will be announced in the next few weeks, but a reasonable estimate is already possible at this stage.

• The budget law is due to be submitted to the plenary of the Italian Senate for approval on 18 December - although the calendar of works may be tweaked to speed up the process. Once Italian senators have given their green light, the bill will go back once again to the lower chamber for the formal final approval. 

• Therefore, it is fair to assume that Monti could resign and the Italian parliament could be dissolved before Christmas - or immediately after, at the latest.  

• Italian law establishes that the elections have to take place at least 45 days and no later than 70 days after parliament is dissolved. Hence, we are looking at either 17 or 24 February as possible dates - with the latter already mentioned by Berlusconi to reporters yesterday night. 

What are the short-term consequences for Italy?

The next general elections in Italy were originally due in early April - meaning that the latest events have actually brought them only a few weeks forward. However, there are at least two short-term implications for Italy:

• With Monti's government leaving office earlier than planned, there will be no time to approve a new electoral law. The one currently in place envisages two different systems for the distribution of seats in the two chambers of the Italian parliament. In short, the existing law guarantees a solid majority in the lower chamber to the party or the coalition that wins the elections, but risks creating an unstable majority (or no clear majority at all) in the Italian Senate. A risk Italy should have avoided running.

• The latest events can easily be interpreted by the markets as a signal that Italy is about to go back to the pre-Monti squabbling between political parties, putting the reform agenda at risk. And in fact, Italy's borrowing costs have gone up quite substantially already this morning.

What are the potential implications for the eurozone and the EU?

Italy's eurozone partners and the EU institutions will be watching the upcoming elections very closely, for obvious reasons. It will be very interesting to see which tones will be used by the different parties during the electoral campaign, and how big an issue the eurozone crisis (and Europe at large) will be. This is what makes Berlusconi's comeback particularly relevant at this point in time.

Over the last few months, Il Cavaliere has pulled no punches in his attacks on a "hegemonic" Germany which is imposing a tough austerity cure on the rest of the eurozone. Crucially, he repeatedly argued that the "disastrous" economic policies implemented by Monti's government ought to be overturned to drag Italy out of prolonged recession and make it return to growth.

Berlusconi is well aware that his party is trailing the centre-left Democratic Party by a wide margin in all opinion polls. Given his undoubted abilities as a communicator, he also knows that he may have to insist on a quite populist, anti-austerity (and, potentially, anti-German) rhetoric to try and regain some ground on the road to the next elections.

All the more so if, as Berlusconi himself suggested yesterday, the historic alliance between his party and Lega Nord - which makes no secret of its opposition to the euro and has recently called for a referendum on Italy's membership of the single currency - is going to be restored.

Add Beppe Grillo's Five-Star Movement - another supporter of a euro referendum - to the mix, and we may be looking at an election where, if these three parties perform accordingly to what the latest opinion polls are saying, around 40% of Italians would vote for political forces which are against excessive austerity (all of them) and even against the euro (Lega Nord and the Five-Star Movement).

Meanwhile, centre-left candidate Pier Luigi Bersani has an interview in today's Wall Street Journal, where he says,

We will respect the very stringent commitments taken...and we will take them on as our own.

Good news for the European Commission, the ECB and Italy's eurozone partners? In principle yes, but we doubt Nichi Vendola - the leader of left-wing SEL party which is going to back Bersani's candidacy to Palazzo Chigi - agrees with such a statement.

In other words, it looks as if Italy is gearing up for an electoral campaign where the future of the eurozone crisis and austerity will be among the core issues - somewhat similar to what happened during the Greek elections earlier this year. Indeed, there is clearly some way before the Italian debate becomes as poisonous or categorical as the Greek one.

Extremely interesting stuff on the horizon, so keep following us for further updates.

Political risk and uncertainty remain Italy's Achilles' heel (an early pre-election overview)

We have not looked at Italian politics for a while on our blog, but do not think the Italian political scene has been uneventful, with the general elections scheduled for April (although they could still be brought forward one or two months).

There is still huge uncertainty in Italian politics and one important question remains completely unanswered: will the next Italian government be able to continue Mario Monti's reforms, needed to convince markets and EU partners that Italy can be competitive inside the euro?

As we have argued before, while the short-term risks in Spain relate to banks and funding needs, the trigger points in Italy are largely political.

An overview of where Italian politics is at explains why. Bear with us:

The Five-Star Movement: The one to watch

The Five-Star Movement, led by comedian Beppe Grillo, remains the dark horse - not least since it remains broadly 'anti-euro' and in favour of a referendum on the country's membership of the single currency. Grillo is not himself going to run for Italian Prime Minister. Instead, the party is currently selecting its candidate through a four-day online internal election - with over a thousand candidates taking part in the experiment. Grillo and his grillini are still polling at around 20% but have ruled themselves out of any alliances with the 'old political establishment'.

The question is whether people will actually vote for the party in the end, given that it has said it will not be in government no matter what happens (perhaps not wanting to 'waste' the vote). But if the party does perform according to current polls, expect shock waves through Italian politics.

The centre-left and the alliances dilemma

On Sunday, Italy's largest centre-left party - the Democratic Party (PD) - named Pier Luigi Bersani its candidate, the party's Secretary General, who won the final run-off of an internal election against Florence Mayor Matteo Renzi. Not exactly the 'fresh face' many think Italy needs - he has already served four times as a minister. He is also an old communist.

However, despite his political past, Bersani did push through a couple of laws aimed at opening up certain 'closed' professions during his years as Economic Development Minister (2006-2008), so he may not be all bad news.

Alliances are the real problem for Italy's centre-left, though. It looks certain that Bersani's candidacy will be backed by the smaller Left, Ecology and Liberty (SEL) party - led by Nichi Vendola, the Governor of Southern Apulia region. Vendola has already made clear that he wants to support a government whose agenda "has the scent of the Left". Therefore, his presence in a hypothetical coalition will make it far more difficult for Bersani and his party to pursue the necessary reforms - particularly when it comes to Italy's labour market, which clearly still needs to be opened up.

In addition, according to the latest opinion polls, PD and SEL would together secure around 36% of votes - which means that more allies would probably be needed to form a stable government (unless the existing electoral law remains in place, which may be the case in the end). Bersani has floated the idea of joining forces with Pierferdinando Casini and his centre UDC party. But Casini addresses a Catholic, socially conservative electorate - which does not sit well with Nichi Vendola, who is, among other things, a staunch supporter of gay marriage in Italy.  

The centre and the 'List for Italy': Working for 'Monti reloaded'

Given the difficulties in finding a place in the centre-left coalition, the UDC party is working on a 'List for Italy' along with two other smaller centre parties - Future and Freedom for Italy (FLI), founded by Silvio Berlusconi's former ally, Gianfranco Fini, and Italia Futura, the new movement founded by the Chairman of Ferrari, Luca Cordero di Montezemolo.

The aim is to give Mario Monti a political platform to remain as Prime Minister. This would make Monti a 'phantom candidate'. On paper, this is a smart way to get around the fact that Monti cannot stand in the elections, because, as a 'senator for life', he already has his seat guaranteed in the Italian parliament. However, the latest polls show that, together, the three parties would only win less than 10% of votes. And Monti's support amongst Italian voters is in free fall.

The centre-right: Silvio still hasn't left the building

The fate of Italy's centre-right depends on Silvio Berlusconi's final decision - in case you thought Silvio was going anywhere. Will he run for Prime Minister or not? On this blog, we followed all Il Cavaliere's deliberations closely (see here and here). The Italian press speculates frequently about the risk/chance of Berlusconi announcing a comeback. There are also growing rumours that Berlusconi may set up a new political party.

For the moment, the internal elections to choose the centre-right candidate for Italian Prime Minister have  been put on ice - waiting for Berlusconi's decision. Berlusconi's comeback - given that the guy has so far faced around twenty different trials, a couple of which still under way - would raise a lot of eyebrows but also upset many people within his own party. PdL is also currently polling at less than 15% and seems to be heading for a bitter defeat.

So all of this points to a lot of post-election political uncertainty in Italy - as we have noted before. A new, quite complicated electoral law, that would make 38% of votes sufficient to secure an absolute majority of seats in the Italian parliament, is currently being negotiated and could also change the dynamics (although it is far from certain that the law will be passed).

Four months can be a very long time in Italian politics, so watch this space for further updates.   

Out of touch or totally in tune? Monti wants an in/out referendum in the UK

In an interview on Italian TV on his new book, 'Democracy in Europe', co-authored together with French MEP Sylvie Goulard, Italian Prime Minister Mario Monti was asked by the host whether Europe has "a British problem".

Monti replied:

"Britain rather considers it a 'Europe problem' [Monti laughs, but no-one else in the studio seems to get the sarcasm]. Yes, there is a British problem… [but] I’m one of those who says that Britain has to be kept in the European Union."

Monti went on to say,

"It is good for Britain to stay in the EU and it is good for the EU that Britain stays in. The euro is a different thing. I’m not sure that, at the moment, it would be good for Britain to have the euro and for the eurozone to have Britain in. But there are aspects of European life that go beyond the euro. The single market, foreign policy, defence policy (one day)…The British can, however, be rather frustrating when they seek, as a condition to stay aboard this big European ship, specific exemptions, specific derogations that would ultimately be equivalent to opening holes in the ship and making it harder to navigate, not to say sink." 

"Now, there are some in Europe who would, after all, feel relieved if Britain were not in. I think some French belong to this category. I am convinced that a compromise with the British has to be sought and, above all, it is necessary that, one day – and I spoke about this with David Cameron last week – the British ask their electorate not, ‘Do you agree with this further change that other [EU] countries want to make’, but ask the fundamental question, ‘Do you want [your country] to remain in the EU?’ I’m sure that, at that point, faced with such an important set of choices - banking interests, financial interests, industrial interests - they [British voters] would immediately say, ‘Yes, please’."

So Monti has waded into the British referendum debate, effectively calling for an in/out choice. It is perhaps a  bit ironic that an unelected head of an unelected technocratic government chose to comment so explicitly on how other democratic countries ought to involve voters in key decisions. We'll leave it up to you to decide whether Monti is completely out of the touch with the UK debate or totally on top of it when he calls for a future British referendum on the EU to be a question of "all or nothing"....

Meet the EU budget 'veto team'

This EU budget stuff can come across as pretty dull and confusing. To lighten things up a bit, we will turn to the universal language of football. So meet the EU budget 'Veto Team' - the eleven EU leaders that so far have threatened to veto the EU budget unless they get a better deal. Needless to say, given that this is its first outing, the eleven-man team is far from a cohesive unit - with lots of big egos and players who play for themselves.

(Click to enlarge the picture)

CF: David Cameron leads the line, ready to strike and seen as the most likely to pull the trigger on any veto.

RW: Swedish Prime Minister Fredrik Reinfeldt at right winger hugging the line (sticking to his guns), happy to put in a shift for the team and more likely to offer an assist/support for Cameron than to deliver the final blow himself.

AM: French President François Hollande is the mercurial trickster playing between the lines but not quite sure of his role or his aims. Ultimately a selfish player (as are many of the others) but whose own personal gain could ultimately be detrimental to the rest of the team.

DM: Italian Prime Minister Mario Monti is playing the stoic holding role, refusing to budge and occasionally gesticulating wildly at the referee, although never actually getting into the danger zone at the forefront of the action. More likely to break up play and provide a stumbling block than deliver a knockout blow to the opposition. Unlike the rest of the team, not here on merit (elected) but parachuted in by the powers above.

LW: Portuguese Prime Minister Pedro Passos Coelho takes on the Cristiano Ronaldo role as a marauding left winger and not just because of the nationality. His red line that Herman Van Rompuy's proposal is unacceptable makes him more of a threat than many expected. Under pressure to perform from his home fans (electorate) he needs to put in a big showing – the question remains though whether he will rise to the challenge or crumble under the pressure.

MC: Dutch Prime Minister Mark Rutte is playing the 'box-to-box midfielder' role, akin to the days of Johan Cruyff's 'total football'. Usually more inclined to side with Germany (the opposition), Rutte finds himself dragged end-to-end with action not quite sure where he should be or where he is best suited. One things for sure, his hometown team (the VVD party) would love to see him score.

LB: Belgian Prime Minister Elio Di Rupo, naturally inclined to the left, find himself at left back. His demands are relatively minor and he’s not a regular in this team (usually part of the core EU group whose views align closely). He’ll put up a fight for a bit but he’s not a star player in this game.

CB: The towering centre-back, Danish Prime Minister Helle Thorning-Schmidt provides a solid spine to the team. Not one of the more flashy players but they know their job and what they want out of it (a clean sheet). Unlikely to score (pull the veto) but will definitely provide a blocker against any increases in the budget.

CB: Austrian Chancellor Werner Faymann is another unfamiliar member of the team. Stuck in at centre back because of its experience in the eurozone crisis and playing a key blocking role in minimising the liabilities. Unfortunately, his aims are different in this game and, as with Hollande, he may end up scoring an own goal (getting more spending in the budget).

RB: Romanian President Traian Basescu, at right back, is there as a late replacement and now a token entry. The previous incumbent (Romanian Prime Minister Victor Ponta) looked set for an interesting game, but after the substitution this role is unlikely to provide much action.

GK: Latvian Prime Minister Valdis Dombrovskis is in goal because, well, the smallest kid always gets stuck with the worst job.
 

The 'Monti paradox' couldn't last forever

Earlier this year, we looked at what we described as the 'Mario Monti paradox' - that is, how surprisingly popular the Yale-educated Italian Prime Minister was, despite being the unelected head of an unelected government of technocrats. We also warned, though, that Monti's lack of a clear mandate from Italian voters would come back and haunt him once the (badly needed) reforms adopted by his cabinet started to bite.

Well, that moment now seems to have come. According to a new SWG poll, 62% of Italians are against a second mandate for Monti. Even more significantly, trust in the Italian Prime Minister is at 36% - down from 71% when he entered office in November 2011.

With the Italian general elections only a few months away (the latest reports suggest that they could be brought forward to 10 March) these findings complicate things further. None of Italy's political parties looks set to gather enough support to govern alone. The centre-left Democratic Party is currently ahead in opinion polls, but is likely to win no more than 25-26% of votes.

Furthermore, Italian comedian Beppe Grillo's Five-Star Movement continues to poll at around 20% and has already ruled itself out of any alliance with 'establishment parties'. Sure enough, the Grillini will be tough in their opposition to the next government - whatever its political colour. Add that Silvio Berlusconi's PdL party has also said that it "wouldn't bet one cent" on a second mandate for Monti, and it really seems that, as the electoral campaign draws closer, no-one wants Il Professore to stay on - except for one or two smaller centre parties.

In other words, Italy is approaching the next general elections with no clear idea of what type of coalition would take over power - provided that Italian political parties are able to form one after the vote. Meanwhile, Italian voters are quite clearly saying that they would not be happy to end with an unelected Prime Minister again. Needless to say, all of this potentially opens for fresh political instability that Italy can ill-afford. 
    

Not quite a U-turn, but still big news from Monti

Speaking at the Council on Foreign Relations in New York, Italian Prime Minister Mario Monti has made an important announcement regarding his political future after next year's general elections.

He said,

Under special circumstances, which I hope won't occur, I may be asked to come back. I may consider this hypothesis, but I hope not to have to. 

And then went on, 

If requested by [Italian] political forces, I'm available for a second mandate. 

By far the most explicit declaration of intent made by Monti during his time as Italian Prime Minister. But this is not strictly speaking a U-turn. What Monti has said so far (most recently in an interview with the CNN two days ago) is that he will not run in next year's general elections.

However (as we suggested here), he may be willing to stay on, if needed, as the head of a broad coalition of reformist parties.

We're now awaiting the official confirmation of Berlusconi's comeback? 
 

You're wrong, Signor Monti: National parliaments are not the problem - they're the solution

Italian Prime Minister Mario Monti has launched a diplomatic offensive in Germany, involving several interviews with the main German dailies. However, he made a faux pas while talking to German magazine Der Spiegel. Monti said,

"If governments allow themselves to be completely bound by the decisions of their parliaments without maintaining some room for manoeuvre in international negotiations, then a break-up of Europe will be more likely than closer integration."

Excuse us? An unelected technocrat instructing national governments to ignore their parliaments? Whatever Monti tried to achieve with these remarks, it didn't work. And he has already experienced a backlash in Germany, where if anything, there's close to a cross-party concensus over the need for giving the Bundestag more oversight not less, in the wake of the eurozone crisis and the multi-billion euro bailouts. The various rulings handed down by the German Constitutional Court during the eurozone crisis, demanding a stronger role for the Bundestag, also shows how Monti is messing with some pretty fundamental democratic settlements (see here, here, here and here).

Unsurprisingly, Monti has attracted criticism from across the German political spectrum. German Foreign Minister Guido Westerwelle (from Merkel's junior FDP coalition partner) said,

"Parliamentary control over European policy is out of any discussion. We need to reinforce, not weaken, democratic legitimacy in Europe."

Alexander Dobrindt, the Secretary General of the CSU (the Bavarian sister party of Merkel's CDU) was far less diplomatic,

"The greed for German taxpayer money is blossoming in undemocratic ways with Mr Monti...We Germans will not be prepared to eliminate democracy in order to finance Italian debts."

The deputy leader of the opposition SPD faction in the Bundestag, Joachim Poss, suggested that the "unspeakable Berlusconi years" had undermined the image of parliament in Italy, and added,

"The acceptance of the euro and its rescue is strengthened through national parliaments and not weakened." 

The en plein of rebukes was completed by the European Commission, with spokesman Olivier Bailly saying (have they started to learn?),

"The European Commission respects the competences of national parliaments."

All of this led Monti to clarify his stance in a communiqué:

"I just wanted to stress the need to maintain a continuous and systematic dialogue between [national] governments and parliaments, in order to make steps forward in the process of European integration." 

But Monti's remarks give testament to a most concerning elitist mentality, which has all too often been evident in the history of European integration: democratic scrutiny is a nuisance that should be avoided wherever possible. If he thinks that the Europe that emerges from the eurozone crisis can be built on backroom deals struck between a handful of EU leaders, under the radar of national parliamentary scrutiny, he may be in for some very unpleasant surprises. Continuing down that road will result in the rise and rise of some seriously populist, anti-EU parties as voters look for alternatives. The baby will have been thrown out with the bathwater.

National democracy is not only a matter of principle but also serves a practical purpose: actions and policies that enjoy democratic legitimacy have a far greater chance of standing the test of time. Therefore, national parliaments are not the problem in the eurozone crisis, they are a big part of the solution to it.

Ironically, as he struggles to push reform measures thorugh his own parliament, Monti may soon realise just how wide of the mark his comments were.    

Super Mario lets the markets (and maybe not just them) down - for now

Italian Prime Minister Mario Monti and his Spanish counterpart Mariano Rajoy would have done well not to choke on their working lunch in Madrid while listening to ECB President Mario Draghi's press conference. In fact, in spite of last week's remarks that the ECB would do "whatever it takes" to save the euro (indeed, without overstepping its mandate), Draghi has today effectively said that the ECB is not going to do anything at all - at least for the moment.

As usual, some 45 minutes ahead of the start of Draghi's press conference, the decision on interest rates was made public and...nothing. They were all left unchanged. But interest rates were the side-show today, after all. Everyone was expecting an announcement on the purchases of eurozone debt on the secondary markets. And this is what Draghi told the press in his opening remarks,

[Eurozone] governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist – with strict and effective conditionality in line with the established guidelines. The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions. 

 And then,

The [ECB's] Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective. In this context, the concerns of private investors about seniority will be addressed. Furthermore, the Governing Council may consider undertaking further non-standard monetary policy measures according to what is required to repair monetary policy transmission. Over the coming weeks, we will design the appropriate modalities for such policy measures.

Which, in practice, means:

• If Spain (or Italy) believe they need help to bring down their borrowing costs, they should tap the eurozone's bailout funds and accept the conditions attached to an EFSF/ESM bond-buying programme - rather than just waiting for the ECB to intervene;

• The ECB may consider buying bonds in coordination with the eurozone's rescue funds, if and when these have already been triggered following a request by a eurozone country. However, as Draghi stressed, the EFSF buying bonds is a "necessary", but not in itself a "sufficient" condition for the ECB to resume its purchases;

• On a more positive note, though, Draghi left open the question whether potential ECB bond purchases would, in future, be limited or unlimited. 

Not quite what Madrid and Rome were hoping for. Interestingly, Draghi also said that the very cautious outcomes of today's meeting - which the ECB President himself described as mere "guidance", and not "decisions" - had failed to obtain unanimity within the ECB's Governing Council, as one member (Bundesbank Chief Jens Weidmann anyone?) had expressed reservations.

Needless to say, the impact of Draghi's words on the markets has been immediate, and huge. Spain's stock markets index, Ibex, went down by almost 5% while the press conference was still under way, while Italy's FTSE Mib index has gone down by 3.4%.

But most importantly, the interest rate on Spain's ten-year bonds is now again worryingly close to 7% - a level widely seen as unsustainable. Monti and Rajoy are due to hold a joint press conference shortly, we will keep you up to date on our Twitter feed @OpenEurope.

Italy's "Up yours Delors" moment?

A bit rude, but just to show how high tensions in the eurozone run - add football to the mix and feelings boil over.

This is the front page of today's edition of Italian daily Libero (centre-right, politically very close to Silvio Berlusconi).

For those not familiar with Italian language, 'VaffanMerkel' is a fusion of the name of the German Chancellor and the Italian equivalent of f*** off.

Makes "Up Yours Delors" - the Sun's famous headline from the 1990s - look polite...
 

Sneaking in on the Franco-German axis (without lecturing)

La Repubblica yesterday claimed that Italian PM Mario Monti sees opportunity in a Francois Hollande victory in the French Presidential elections. The opportunity lies not so much in Paris as in Berlin.

Monti reportedly thinks a Hollande victory would weaken French ties with Germany, over issues such as the role of ECB, the fiscal treaty and government spending. Berlin will look for allies, so the logic goes, which presents a chance for Rome to "sneak in". La Repubblica's interpretation is that Monti wants to "replace" Sarkozy - or at least the role Sarkozy currently plays in the Franco-German axis. 

All highly speculative of course, but an interesting prospect, which should serve to stimulate thought in London as well, i.e. could an Hollande victory help strengthen the London-Berlin link? Possibly. But, as we argue over on the Telegraph blogs, for this to happen, London needs to sharpen its diplomatic tone and posture - which includes avoiding lecturing the Germans on what needs to happen with the euro. Though we share his frustration with the euro crisis, David Cameron again came close to doing this on the BBC's Andrew Marr show on Sunday.

We argue "the reality is also that the UK has very limited influence over events and decisions in the Eurozone. This is why lecturing eurozone leaders is at best pointless, and at worst outright counterproductive."

We go on,

"Given its limited clout in euro politics, what the UK says is unlikely to sway German Chancellor Angela Merkel in one direction or the other. In other words, it creates frustration in Berlin in return for no clear diplomatic benefit. Talk of large-scale ECB intervention or debt pooling goes against not only promises that were made to the German electorate when the single currency was forged, but also against the very corner-stone of the German economic model: sound money. With such lecturing, can the UK then complain when the Germans show limited willingness to understand the need for a vibrant financial services industry, an integral part of the UK’s modern commercial identity?

It’s particularly bad politics as the UK now has an opportunity to strengthen ties with Germany. Francois Hollande – a Keynesian who wants to spend his way out of the crisis (which may be more talk than action) – looks set to win the French presidential election. Cameron won’t break the Franco-German axis – nor should he try to. But he could create a lot of good will in Berlin by throwing his weight behind a Europe based on sound money and living within one’s means, not least by taking strong action at home, while making the case for supply-side reforms where appropriate. Whether you like it or not, German buy-in is essential if Britain wants to achieve a new and sustainable relationship with the rest of Europe. It would be silly to let loose talk undermine a new Anglo-German deal.  Leave the Keynesian lecturing to Ed Balls."

Italy's Reforms: Monti Fires The Starting Gun

Italy's unelected government has entered one of the most delicate stages of its tenure. Mario Monti and Italian Welfare Minister Elsa Fornero (in the picture) have just presented their key proposals for reforming Italy's labour market.

The full text of the draft bill is available here (in Italian). If adopted, the proposed measures would introduce substantial - and desperately needed - reforms to Italy's labour market.

In particular:

• The so-called 'social shock-absorbers' (i.e. unemployment benefits) will be extended to all categories of workers, but will be available for shorter periods to avoid people excessively relying on help from the government instead of seeking another job;

• Apprenticeship will be encouraged as opposed to the current system where too much emphasis is put on academic degrees;

• A proposal to change the peculiar way 'unfair dismissals' are dealt with under Italian law (which we looked at here - basically, anything can count as 'unfair dismissal' which makes it very difficult for employers to hire and fire). But this reform actually seems to have been watered down at the hands of Italy's centre-left Democratic Party, which has close links with trade unions.
  

In addition, Monti also wants to make it more expensive to re-employ temporary workers, by forcing employers to either put temps on a permanent contract or let them go, after a certain period of time. This is a tricky one. Long-term employment should of course be encouraged and the incentives proposed for employers who hire people permanently could help. But would it also not reduce the flexibility of the labour market? And would it actually provide an incentive for firms not to hire permanent workers (instead employing different temporary staff)?

Within Italian context, these are substantial reforms that should not be under-estimated. But they remain somewhat patchy and could be further watered down by the Italian parliament. Being a technocrat doesn't make Monti immune to political pressure - but these reforms, whilst welcome, are only the starting point in the long race to drag Italy out of its current malaise.