Battle to save the euro centres on Italy
The reform of the Italian economy is critical to the survival of the euro. But success also depends on external factors out of the Italians’ control.
The survival of the euro directly depends on the willingness of the Italian politicians to co-operate with Mario Monti in the implementation of his programme of radical reforms. Unrest among the politicians in Rome is growing, and Italy has become the frontline for the battle to save the euro. Unlike the peripheral economies of Greece, Portugal and Ireland, Italy is too big to bail out.
Monti’s new ‘technocratic’ government is widely recognised as being the only solution to a long-standing political impasse, but for many it also bears uncomfortable historical parallels. As Monti outlined a comprehensive programme of radical reforms, some observers commented that progress had only ever been as quick under the rule of Benito Mussolini in the 1930s.
Despite his popularity, Monti lacks political legitimacy because his arrival was engineered by a clique of politicians in Brussels, Paris and Berlin, and key Italian leaders such as ECB head Mario Draghi and former prime minister Romano Prodi, a close friend of Monti.
For now, the success of Monti’s reform programme depends on the acquiescence of the main political party leaders. Former prime minister Silvio Berlusconi gave conditional support to the government, as did most of the other party leaders, but with the implicit threat that he could take it back at any point.
Italian fund managers, in common with the general public, are broadly in favour of Monti’s government. A survey of Italian fund managers carried out by RBC Dexia Investor Services at the time of Monti’s appointment found 74% were confident he would be able to tackle the country’s deficit, though they were evenly split over the prospects for wider economic recovery.
But the perception that Italy has been ‘taken over’ by Brussels, as happened in Greece and Ireland, is gaining ground. This month, the centre-left Partito Socialista Democratico Italiano (PSDI) relaunched itself with a surprising new political agenda.
Surprising, that is, for a centre-left political party: namely, for Italy to exit the eurozone and the EU altogether. At their inaugural conference in Rome recently, the party’s leader Renato d’Andria in a press release branded the Franco-German inspired removal of Berlusconi as a “coup” and a “denial of democracy”.
In a press release, he said: “We should quit the euro and leave the EU and take a leading role in a new organisation – a Mediterranean Union.