Bill Emmott - International Author & Adviser


Investors in Italy can Look beyond Monti
FT - December 6, 2012

It will be quite a responsibility to follow an acknowledged saviour, a man so trusted by the international lenders on whom your country depends that most of them not-so-secretly hope that he will still be prime minister after the elections next spring that you hope will bring triumph to you. The responsibility doesn’t even stop there: it may well be that the successor will hold in his hands the future of the euro. So no pressure then.

The country in question is Italy, the euro-zone’s largest sovereign debtor, its third-largest economy and the one with the most long-standing, most deep-seated ailments. But no, the man likely to succeed the esteemed Mario Monti is not Silvio Berlusconi, despite his latest announcement of yet another “comeback”, claiming he is being asked by many people “to save Italy”, even though he knows all too well that Monti became prime minister a year ago in order to save it from him. The man to watch, and think about, is a former communist, Pierluigi Bersani.

Mr Berlusconi will, for sure, relish running against Mr Bersani more than he would have relished competing against the man Bersani beat in last Sunday’s primaries to become his centre-left Democratic Party’s candidate, Matteo Renzi, the 37-year-old mayor of Florence. Renzi would have personified change in a centrist, Tony Blair sort of way, and would have rivalled Berlusconi in his optimism and telegenic skills. Bersani is a duller, older man (61) about whom Berlusconi can readily use his favourite insult: communist.

Yet the truth is that Bersani is as far from being a communist as Berlusconi is from being a monogamist. And while Berlusconi’s party, currently called “People of Liberty”, is in disarray, Bersani’s Democratic Party has been strengthened by its very civilized primary election campaign, and energized by Renzi’s strong, but not divisive showing. Opinion polls say that if the elections were held now, Bersani would be the clear winner.

The question for investors is whether to worry about that. Plenty of people, especially in business, still think that Monti, the aforementioned saviour, will somehow be kept in office in order to reassure bond markets and Chancellor Angela Merkel. But although that outcome might look soothing to some, it would in fact only be possible if the spring elections had gone badly, producing an inconclusive, fragmented result giving no one a clear parliamentary majority. That is not the result for which investors should be hoping.

The result that Italy needs is one that gives a new government the chance of surviving for all or most of its five-year term, and that enables that government to implement profound reforms. Italy’s problems are not matters of short-term management of government budgets, which is what Monti has mainly been concerned with during his year in office, nor really a question of the public debt, even though it totals 120% of GDP. The real problem is a chronic lack of economic growth, over the past 20 years, which has prevented that debt burden from being reduced.

To deal with that requires a government capable of removing the country’s many self-imposed obstacles to economic growth, which in turn requires broad support and political durability. Such a result can really only come with a victory for Bersani’s Democratic Party, and thus, for all his virtues, with the retirement of Monti at least from the prime ministership. In the primaries, Bersani allied with a small party to his left and cozied up to the big trade union federations. Now he needs to take a leaf out of American presidential candidates’ book and start tacking to the centre, both to win votes directly and to win him partners for a potential coalition.

A clear victory for Bersani is a necessary prerequisite for reform. But the question investors and anyone concerned about the prospects for Italy and the euro must ask is whether it will be sufficient. And the answer to that depends on whether Bersani can show that he really understands Italy’s ailments.

His record is mildly promising in that regard. As Minister for Economic Development in the weak centre-left government presided over in 2006-08 by Romano Prodi, he attempted to introduce a liberalization programme of just the sort that is now needed, on a much larger scale.

To achieve such a programme, he will have to kill a lot of left-wing sacred cows. Italy’s 20-year sickness has been assisted by the left’s destruction of meritocracy in universities and the public sector, and by its refusal so far to contemplate a Scandinavian-style labour-market reform that weakens old job protections in return for better welfare support. Above all, it has been assisted by the Italian left’s deep suspicion of capitalism, personified recently by its demonization of the Canadian-Italian boss of FIAT, Sergio Marchionne.

Changing that will the tallest of orders for Bersani. But without a strong government led by someone like him, it would be virtually impossible.


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