In his meeting with President Obama on February 9, the new Italian Prime Minister Mario Monti will be in a position to present his counterpart with details of Italy’s dramatic turnaround—one that has a reasonably good chance of transforming the country from a euro area basket case into the potential keystone of a solution for Europe’s crisis. In less than three months, Monti has actually remodeled the political environment and the economic fabric of his country. In doing so, he has also become a major actor on the European stage.
As announced by the White House, the two leaders will discuss not only Italy’s situation, but also Europe’s policies including “the prospect of an expansion of Europe’s financial firewall.” The broadening of the discussion to Europe should not come as a surprise. As a policymaker Monti is unusual, having gained his governance experience not in national politics, but mainly in the European institutions, as a two-term EU Commissioner. Accordingly, his chief feature as Prime Minister seems to be a combination of national and supranational priorities that favor each other. His role and expertise could therefore represent a game-changer for the euro area, with implications extending beyond Europe.
Mario Monti was nominated Prime Minister on November 16, 2011, at arguably the most dramatic juncture of the euro area crisis. At the time, the White House branded his mandate as a “significant responsibility at a critical time.” An internationally renowned economist, Monti was chosen after Silvio Berlusconi’s troubled government finally unraveled, threatening to bring Italy into default. Despite being parachuted into the position from outside the political arena, he and his ministers were granted unprecedented political backing by the Italian Parliament. The proposed government received a vote of confidence of 556 to 61 in the Chamber of Deputies and 281to 41 in the Senate. All three major political groupings, ranging from the right, center, and left of the center (including Berlusconi’s party), voted in favor of the new executive, giving it full democratic legitimacy.
In his first weeks as head of government, Monti introduced a massive fiscal package and got the Parliament to approve an ambitious pension reform. The sum of fiscal corrections deliberated in 2011 amounts to some 6% of GDP. The pension reform has also already been implemented. The austerity package shocked most political observers and economic analysts by its severity, but it sailed through Parliament with an overwhelming majority of about seven in ten MPs. Although Monti’s popularity in the Italian public opinion declined after the fiscal package, it climbed back in January and is currently between 60 and 70%—three times as popular as his predecessor was just before his resignation.
By implementing the requirements spelled out by the European institutions, Italy is now on track to balance its budget in 2013. After that, the famously high public debt (about 120% of Italy’s GDP) should decline more or less automatically, given the forthcoming constitutional provision for a balanced budget as required by the “fiscal compact” that was approved at the EU Summit on January 30. Moreover, in the first weeks of 2012, the Prime Minister, who also holds the Treasury portfolio, introduced a set of liberalizations aimed at increasing the depressingly low level of potential growth of the Italian economy and is now preparing an extensive reform of the labor market.
With these credentials, Monti has been able to join Merkel and Sarkozy in the frequent series of consultations among the leaders of the larger EU countries. However, rather than just taking a third seat at the table, the Italian leader aims to add a communitarian and integrative perspective to the Franco-German directorate. A widely noted Financial Times article went as far as saying that the euro’s destiny depends on Monti’s success, and vice-versa, while a number of observers in the media find that he seems to speak as president of the EU Commission as well as Italy’s Prime Minister.
In fact, one could even talk of a “Monti method”, with reference to his habit of employing the perspective of the interlocutor in order to prove his own points. His defense of central bank autonomy and of fiscal rigor, which puts him in a special relationship with Germany, is a case in point. As an EU Commissioner, he could use the German Ordoliberal arguments (on the virtues of a well-regulated market economy) to force that country to advance the liberalization of its tightly protected national service sector. Back in 2000 he pointed the EU Commission’s finger against the special status of the Landesbanken, which would later play a key role in the euro crisis.
Something similar happened vis-à-vis the United States. A staunch Atlanticist as well as a believer in the virtues of market economy, Commissioner Monti imposed from Brussels the respect of competition rules on such American corporate giants, as Microsoft, General Electric and Honeywell, hence earning the famous brand of Super-Mario (now occasionally extended to another Italian—Mario Draghi).
Prime Minister Monti, after setting Italian fiscal policy on the right course in compliance with the tight schedule and strict rulebook imposed by the creditor countries, is now in position to call for a more ambitious economic policy for the euro area, and for the entire Union, including also the full implementation of the internal market of goods and services, Monti’s favorite objective. The EU Council’s recent commitment on the issue of growth to complement fiscal rigor, reflects Monti’s influence.
Moreover, a policy course supporting the economic growth of the euro area is fully shared by Washington. As such, it could even appear in the common statement issued at the end of the meeting, along with the aforementioned “firewall” provision the EU should put in place to counter market instability in the euro area. This has been a sensitive issue in the United States, where it has been previously difficult to consider providing any financial support—either directly or indirectly via the IMF—for a troubled Europe, despite the fact that even China may be taking it into consideration. The results of the February 9 meeting will also be scrutinized for suggestions of possible U.S. participation in a financial backstop for the euro area.
The risk that Italy will not be able to refinance its debt is considered the make-or-break case for the eurozone. Italy is commonly considered too big to be saved even for those euro-partners that have stronger fiscal positions. Consequently, it is essential for the euro area as a whole that Italy manages to refinance its huge obligations in the next months. More specifically, between February and April, Italy will have to roll over 140bn euro of government bonds that are coming to maturity, almost half of the total for the full year. From this perspective one can easily understand Monti’s urgency for a stronger European “firewall” behind the debt of the euro area countries. A stronger financial backstop, which would have to be topped off by Germany and the other surplus countries, would de facto provide the symmetrical argument for him to maintain parliament’s support at home and the necessary popular backing for the reforms that are modernizing the country.
Mario Monti is branded a “tecnico” in Italy, meaning that he is not elected. The President of the Republic, Giorgio Napolitano, used his prerogative to make him a member of Parliament before appointing him as prime minister. However, the technical label remains, both domestically and internationally, often with an implicitly negative overtone. This reflects a recent peculiar development, at a time of spreading populism, to disparagingly downgrade as bureaucrats and technocrats certain effective policy makers who were once respectfully called “civil servants”—or in French, “commis de l’Etat”. It is conveniently forgotten by populists today that the European Community, now the Union, was a brainchild delivered by a technocrat named Jean Monnet.
The talks between the economist and technocrat Italian PM and the U.S. President will not be confined to the current economic challenge for Europe and the West at large, however central it will be. Italy’s policies in its near neighborhood will be on the agenda as well, starting with the Balkans, but focusing on North Africa, where Italy’s restored role and the right combinations of bilateral channels and joint western approaches are needed to stem a failure of the Arab awakening. Such a failure may affect stability as well as jeopardize development and cross-cultural dialogue in the Mediterranean. Mario Monti, who will be accompanied by the former ambassador to the U.S. and now foreign minister, Giulio Terzi di Sant’Agata, will likely be in favor of reinforcing EU communitarian initiatives on the basin’s southern shores and in the Middle East at large, including Syria, rather than the intergovernmental French-inspired Union for the Mediterranean that failed to play a useful role following the uprisings of 2011.
Rome’s perspective, however, is bound to focus also on more distant geo-political areas such Russia and the Gulf, as a consequence of its acute interest for energy supplies. A greater transparency in these two sets of relations is desirable, along with a more integrated approach by the Europeans and a closer consultation across the Atlantic, ahead of possible crisis situations.
Finally, NATO. In the light of the uncertain outcome of its action in Afghanistan, where Italy is actively engaged, the organization may find itself in search not only of a strategy, whether “smart” or else, but also of a purpose, as was the case at the end of the cold war. The European-led operation in Libya, benefiting from a decisive Italian contribution more than it was perceived, was smaller and yet more successful and infinitely less costly than those in western Asia. Thus some lessons may possibly be drawn from it. The summit scheduled for next May in Chicago may provide an opportunity for an assessment and possibly for a reappraisal. Going back to the Monti government’s domestic standing, it is worth noting that the parties opposed to Monti in the Italian parliament also happen to be against the country’s participation in NATO missions and even against UN peace-keeping operations having an Italian contingent.
Mario Monti’s bilateral with Barack Obama on February 9 is the first such face-to-face meeting at the White House with an Italian top official since the May 2010 visit by the head of state Giorgio Napolitano. After the meeting, Napolitano went to Capitol Hill to address a bipartisan group of congressmen. His message at the time was that the euro was not about to crumble, as several American observers were predicting, and that Italy would do its homework to help prevent the collapse from happening. The remarks sounded rather optimistic to many. In effect this week the new Italian Prime Minister will be in Washington and New York to tell his American interlocutors that Italy’s homework is actually being done and that the euro, however shaken, will overcome the crisis.
A durable solution to the financial instability in the euro area, however, still remains to be found and depends on the success of the EU negotiations on the “firewall”.