Bill Emmott - International Author & Adviser


The Iron Professor has one year to save Italy
The Times - February 6th 2012

Let’s admit it. We have all greeted snowy transport paralysis by being pleased to stay at home, snuggle up, and have an excuse to open that bottle of whisky we have long felt lustful towards. Imagine, then, the relief that Mario Monti’s Italian government must feel, now that even Rome has been brought to a halt not by the taxi-drivers, truckers or lawyers who have been lobbying for weeks against his liberalization measures but by the worst winter freeze in Italy for 27 years. That special bottle of grappa has no doubt done its duty.

            The freeze, though, is a good metaphor for Italy, better than the wreck of the Costa Concordia and of Captain Schettino’s “Lord Jim meets Moldovan mistress” moment. In Italian politics last November it was a reverse Schettino moment that happened, when President Giorgio Napolitano and the international bond markets yelled “jump overboard, idiot” to Captain Silvio Berlusconi, whose Bunga-Bunga band was still playing on, and the noble, dutiful Mr Monti climbed on to ensure that the ship avoided the rocks.

            So far, he has been remarkably successful, though more for what he represents and advocates than for what has yet been done. This former European commissioner and economics professor represents seriousness, public service and credibility, while Mr Berlusconi epitomized frivolity, personal service and incredulity.

            Helped by the European Central Bank’s emergency lending that over the past two months has averted a European banking crisis, Mr Monti’s own budget austerity package has pulled his government’s borrowing costs down from the potentially bankrupting 7%-plus range to a comfier 5-6%. An Italian prime minister is now a welcome visitor to places other than Tripoli and Moscow, as will be shown when President Barack Obama hosts Mr Monti at the White House on February 9th.

            Beyond the personal comparisons, the crucial difference between Mr Monti and Mr Berlusconi is that the new man is making Italy look like a solution to Europe’s and the West’s economic crisis, not a cause of a next, even worse disaster. Yet, as Mr Monti would privately acknowledge, that judgment is only a small comfort.

            Get rid of foolish British notions that the installation of Mr Monti and his government was in any way anti-democratic. It was done entirely constitutionally, and the Monti government depends wholly on the support of Parliament to pass budgets and laws. Without the votes both of Mr Berlusconi’s right-wing party, People of Liberty, and of the left-wing Democratic Party, the Monti government would fall tomorrow and new elections would be called.

            Only Mr Berlusconi’s former coalition partner, the Northern League, is opposing the government and demanding elections. But it is a declining force which demands independence for a fictional northern Italian land called Padania, is fiercely anti-immigrant, and has suddenly turned anti-euro. It is a weird combination of the Scottish National Party, the British National Party and UKIP, and for now need not be taken too seriously.

            Mr Monti’s biggest strength is that none of the main parties, and especially Mr Berlusconi, wants elections while the economy remains in a mess. He is cleverly using that strength to propose liberalization measures that hurt as wide a range of special interests as possible, so that no one can claim to be being singled out. The Thatcher strategy of making an example of the coal miners is not for him. He would rather be hated a little by a lot of people, than a lot by one or two particular groups.

            Thus far, this plan is working, although there is a sense in Italy that much of the liberalization is hitting ordinary people—those taxi-drivers—rather than the real anti-competition culprits, which include Mr Berlusconi whose control of two-thirds of commercial television and through his agency 40% of the country’s advertising sales makes him a true abuser of a dominant position, to use the anti-trust parlance with which Mr Monti is very familiar from his time as European competition commissioner.

            Mr Monti’s biggest weakness, however, is lack of time. Even if the parties’ ceasefire holds, there must be an election in the spring of 2013, and Mr Monti has said he will not run in it. So while the Iron Lady had a decade to shock Britain out of its 1970s decline, the Iron Professor has barely a year. Crucially, that year is almost certain to be one of worsening recession.

            Higher taxes and cuts in public spending, and declining consumer and business confidence, are combining with the eurozone’s wider troubles to produce that recession. The economy is in a deep freeze, just as politics are. It will, of course, be a familiar picture to George Osborne except that the British chancellor is not trying also to achieve an ambitious programme of liberalization and, vitally, a major reform of the labour laws.

            Those reforms are certainly necessary. Italy is one of the most over-regulated, least liberalized countries of Western Europe, and its labour laws give strong protection to older workers and almost none to young people on temporary contracts. Even permanent workers can be fired in principle, but in practice employers who fire people get caught up in legal battles for decades, such is Italy’s sclerotic justice system. And the lack of any real, comprehensive unemployment benefit makes employees even more determined to fight on.

            A big fight is coming, over labour reforms. The Monti government says it wants to introduce a single, more flexible labour contract at the same time as launching a new unemployment insurance scheme—oh, and to reform the justice system too. Few—especially in the still powerful trade union federations—believe that all these things can be done simultaneously, with only a year in office, and with all sorts of bad economic weather on the forecasters’ charts.

            That bad weather includes the still-high prospects of a Greek debt default and associated Portuguese debt crisis, and the alarming thought of Francois Hollande winning the French presidency in May on a British-style mandate to renegotiate the eurozone’s fiscal pact and to slam various taxes on financiers.

            At least, in those circumstances, Italy would not be the cause of Europe’s next crisis, but just another, rather big, victim of it. So perhaps Mr Monti can look on the bright side, as he snuggles under his duvet. By the end of 2012 he will have introduced measures that Italy has needed for 20 years, and which the supposedly liberal Berlusconi governments shunned. The country will still be in an economic freeze, for such measures take years to warm things up. Then elections will be held and someone else will take over. That will be quite a relief.


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