Not long ago, in November 2011, economist Mario Monti was designated to pull Italy back from the brink and save the European Union from collapse. He led a non-elected government of technocrats in the wake of the markets delivering a final blow to prime minister Silvio Berlusconi.
Fifteen months later, Italians head to the polls, where they will give a verdict on Monti’s term, as well as the wage cuts and other retrenchments they have experienced since.
Investors and analysts’ all agree, Italy’s economic tragedy was avoided. The country didn’t require a bailout. Needed structural reforms encouraged by the European Central Bank and German Chancellor Angela Merkel were initiated. Even though in 2012, Monti’s only full year in office, Italy’s economy shrank 2.2%, Super Mario, as he was known in the media, still gets positive reviews. So, was a government of experts the correct remedy for the country? Is Italy’s economy now safe?
Three beliefs prevail. First, and foremost in the eyes of investors, is that the E.U. benefited the most from his tenure –it’s far from a coincidence that he was a former European Commissioner. Second, it’s sure to say that the austerity measures he has implemented have put Italy in a better place, if still not safe from disaster. Third, his largest negative, he hasn’t created growth or jobs in Italy, an endemic European problem and a consequence of the austerity program.
“Monti was not able to make miracles. He started a process of structural reforms, which is developed over a period of time,” says Nicolas Veron a Senior Fellow at Bruegel, a Brussels-based think tank. Much of Monti’s legacy will depend on the next prime minister’s ability to safeguard what he initiated. If that were to be Silvio Berlusconi, seeking a fifth term in office at 76 and whose latest campaign pledge is to reimburse Italians for the tax they paid in 2012, that bequest is at risk.
Monti carried out a large part of his ambitious fiscal reform and austerity program in a relatively short time. This included raising the retirement age and changing basis of state pensions; increasing property taxes, hiking sales tax and petrol tax; and cutting funds to local government. As a true technocrat he distanced himself from popular opinion.
Nevertheless, critics say he took too long to initiate all the reforms in his package of emergency austerity measures announced two weeks after landing in office. As part of his competition measures, in June 2012, ahead of an E.U. summit, he passed labor-market reforms making it easier to hire and fire workers. Critics said the law, which didn’t apply to the public sector, didn’t go far enough.
Monti, who resigned from his post as senior adviser at Goldman Sachs before heading the third largest economy in the euro zone, wishes he could have done more, such as reducing the number and power of provincial governments. However, he was often blocked by political stalemate in parliament.
Meanwhile, Italy’s recession continues. Monti has not eased the country’s huge public debt–at $2.7 trillion it is 130% of GDP. The economy contracted the most in almost four years in the quarter through December. It continues to be the E.U.’s slowest economy. Consumer spending saw its largest year-on-year drop in decades. The Bank of Italy forecasts the economy will contract a further 1% this year.
For now, investors agree that Monti has restored the country’s credibility. Italy is on the right path, they say, notwithstanding that technocratic government is not right for every country, since “it’s part of Italy’s difficult political system, it was an Italian response, to an Italian problem,” says Bruegel’s Veron, who is also a visiting fellow at Peterson Institute for International Economics in Washington.
Monti’s influence is assured since parliament passed his 2013 budget two months ago. That stipulates spending cuts of $4.8 billion through 2015. Opinion polls predict that the vote will grant Monti’s centrist party, Civic Choice, a place in a coalition government led by centre-left leader Pier Luigi Bersani. Germany’s Merkel must be thinking, again, anything but Berlusconi. This time, Monti’s legacy and Italy’s future lies in the hands of Italy’s fickle voters.