(from the article published by the Financial Times “Monti in fight for survival”) – Hastily elevated from professor to prime minister to saveItaly from financial ruin, Mario Monti is entering his most crucial week in politics, his options dwindling as the future of the euro hangs in the balance. Should Mr Monti come away empty-handed from a European summit starting next Thursday then his unelected technocrat government can expect to come under mounting pressure to resign and make way for early elections, a prospect that is already causing alarm on the markets.Guy Dinmore
A year ago, as the eurozone sovereign debt crisis lapped at Rome’s door, Edward Altman, finance professor at New York University, gave Italy – and the euro – a 70 per cent chance of survival. “Now it is no more than 50-50,” he told the 2012 International Risk Management Conference inRome. “Italy is the fulcrum country. Italy is under the scrutiny of the markets.
Italy is too large to save,” he added, warning that “every major institution” is analysing the consequences of the death of the single currency.
Tomorrow in Rome, a summit of heads of government of Italy, France, Germany and Spain – the four largest eurozone economies – will see pressure put on Chancellor Angela Merkel to agree on a package of growth-promoting measures and a “firewall” to backstop the debts of Spain andItaly.
Mr Monti’s latest proposal, raised at the G20 summit, is to use eurozone bailout funds to buy the debt of countries such as Spain and Italy on the market. Germany’s reaction to this idea is said to range from cool to dismissive.
Officials in Berlin said Mr Monti’s proposal did not have traction and that the Rome summit would focus on the growth package – for which France’s Francois Hollande will claim authorship – and a longer term road map to reach a European banking union.
Rome’s argument for bond-buying is it would not amount to a bailout with strings attached asItaly has been “virtuous” in keeping its budget deficit on target to fall below 3 per cent this year while pushing through structural reforms, notably on pensions.
With the costs of its 1.95tn public debt rising and the economy sinking further into austerity-induced recession, Italy faces a daunting task in rolling over its bills and longer-term bonds. Riccardo Barbieri, chief European economist at Mizuho International in London, estimates the total at 211bn from July 1 to end-2012.
The government hopes to raise 10bn this year by asset sales and save a further 5bn with spending cuts, but this might not be enough to offset the need to raise taxes further if the 1.7 per cent budget deficit target is to be achieved.
“Monti is at fault in not pushing enough for growth,” said Oliviero Roggi, corporate finance professor at the University of Florence. “We are entering the Greek circle of recession, leading to default of companies, to the default of the government and then to bailout.”
Recession is clearly biting. Unemployment has risen above 10 per cent, and bankruptcies are mounting as companies struggle to get credit from banks. The overwhelming popular support for Mr Monti when he came to office last November on the back of Silvio Berlusconi’s paralysed government has fallen sharply.
Even in Brussels, where Mr Monti served 10 years as commissioner, patience is said to be wearing thin. One senior EU official said he was developing a reputation of telling his interlocutors what they wanted to hear but not delivering back home.
“He’s developed the mythology around him, but the Italian reform agenda has stalled,” he said.This is most visible in the labour reform bill, already watered down but held up in parliament where the two main parties giving Mr Monti his majority are demanding a higher price for their continued support.He has called on parliament to give its approval before he heads to Brussels.
Franco Frattini, former foreign minister and a moderate in Berlusconi’s centre-right party, said parties had “a moral and political responsibility” to support Mr Monti.Early elections would be a “disaster”, Mr Frattini said. “Those talking of a break-up of the alliance [in parliament] and going to elections don’t realise the gravity of the consequences.”
Author: Guy Dinmore