The revelation this week that Monte dei Paschi di Siena (MPS) — the world’s oldest bank and the third-largest lender in Italy — sustained massive losses on derivatives trades with foreign banks consisting largely of long-term Italian government bonds could not have come at a worse time for Pier Luigi Bersani, the center-left frontrunner in next month’s parliamentary elections.
But the news — sure to conjure up memories of the 2007-08 global economic meltdown — may prove even more damaging to Mario Monti, the technocrat and outgoing prime minister who hopes to emerge as a consensus choice to lead the next government and continue policies that European financial elites (if not the Italian masses) have come to look upon with tremendous admiration.
The problem for Bersani is that his Democratic Party (PD), which with its center-left allies has long been favored in the polls to win an outright majority in the lower house of the legislature and come close to a majority in the Senate, controls a charitable foundation that serves as the bank’s biggest shareholder. Bersani and co. have largely backed Monti’s austerity measures, which included painful tax hikes to shore up the financial system. In the case of MPS, that meant supplying some $3.9 billion euros in bailout money.
The populist backlash against Bersani and the Monti regime has already begun, and three-time P.M. Silvio Berlusconi — a master politician who knows as well as anyone how to capitalize on resentment of financial elites — could use the issue to muster a surprise showing for the right in next month’s elections, a contest in which he had been expected to play the role of mere spoiler. Though Berlusconi has indicated he will not seek the premier job himself, his allies in Italy’s Northern League (LN) have quickly latched onto the MPS imbroglio as their best shot at shaking up the race. “This stinks of bribes,” said Roberto Maroni, the party’s leader. “Monti gave MPS 4 billion euros and he must explain why … He cannot avoid the responsibility he has in this disaster, him and only him.”
Monti’s centrist allies had already been languishing in a distant third place in public polls, and fresh off a widely-publicized visit to Davos (which only boosted his image as the preferred candidate of the European Union and international financiers), the economist could find the scandal takes a toll on his popularity.
Complicating matters is that Bersani and Monti may well have to join forces to achieve a working majority in government. In that sense, each could afford a slight bleeding of support from the scandal so long as the center-right doesn’t enjoy a massive uptick in the polls. The message war will likely be won or lost in the coming days, and though the scandal appears unlikely (so far) to completely upend the race, it is well-positioned to color the campaign’s final days, making an outright victory for the center-left that much less likely.