Articles:
Investors in Italy can Look beyond Monti

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.