Battle to save the Euro centres on Italy

The politicians in Rome are getting restive, raising concern about the continued survival of the reforms being introduced by the new government. Separately, Italy has been described as the frontline for the battle to save the euro because, unlike the peripheral economies of Greece, Portugal and Ireland, Italy is too big to bail out.

The success of the country’s economic reform programme is key to the survival of the euro. The instalment of Mario Monti’s technocratic government met a positive response, in part due to an acknowledgement that traditional party politics had made any meaningful reform almost impossible.

The new ‘technocratic’ government is widely recognized as being the only solution to the political impasse, but for many it bears uncomfortable historical parallels. As Monti outlined a comprehensive programme of radical reforms that democratically elected politicians could only dream about, some observers commented that progress had only ever been as quick under the rule of Benito Mussolini in the 1930s.

Monti’s main weakness is that he does not have the legitimacy of an elected politician, his arrival having been engineered by a clique of politicians in Brussels, Paris and Berlin, with the help of key Italian leaders such as ECB head Mario Draghi and former prime minister Romano Prodi, a close friend of Monti.

The success of Monti’s reform programme depends on the acquiescence of the main political party leaders. Former prime minister Silvio Berlusconi has given conditional support to the government, as have most of the others.

Italian fund managers, too, are broadly in favour. 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 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.

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