Former European Commissioner Mario Monti has become the new prime minister of Italy replacing Silvio Berlusconi that will try to reverse a disastrous collapse of market confidence in Rome.
After losing all confidence in financial markets, Berlusconi resigned as prime minister, as promised, after both houses of Parliament passed emergency austerity and reform measures with unusual speed.
President Giorgio Napolitano tapped Monti on 13 November to create a government capable of implementing economic reforms aimed at reviving stagnant growth to bring down public debt, stuck near 120 percent of Gross Domestic Product (GDP).
Improving market confidence in Italy is crucial to the future of the euro zone as the country would be too expensive to rescue. A default on its $2.6 trillion in debt would cause massive chaos in financial markets and shake the global economy.
In 1978, Berlusconi set up Fininvest, a holding company which grew to include several large household names, including Mediaset — with three national television channels — and AC Milan, one of the world's leading football clubs.
But poor investments saw his debts spiral in the early 1990s and critics say that Berlusconi — fearful a left-wing government would touch his powerful media conglomerate — entered politics not for ambition but to save his empire.
Italy’s Borrowing Costs
Monti went to work after a frenetic weekend of political activity, in which Italy’s Parliament approved a package of economic reforms agreed with European leaders, Berlusconi resigned and President Giorgio Napolitano appointed the respected international figure as head of a new government.
After a tumultuous week, when Italy’s borrowing costs rose to the kind of levels that saw Ireland and Greece forced to seek an international bailout, initial market reaction was positive, with both stocks and bond markets lifted.
Napolitano called for an extraordinary national effort to support Monti and win back the confidence of international markets, noting that Italy had to refinance some 200 billion euros of bonds by the end of April.
But once the initial boost from his appointment has passed, Monti will face a major challenge navigating the treacherous waters of Italian politics with clear signs of mistrust already emerging from the centre right.
Monti, a convinced free marketeer with a record of successfully taking on powerful corporate interests during his decade in Brussels, is expected to outline a policy program in line with demands made by Italy’s European partners.
Powerful Leader
Mario Monti made his name as the powerful Competition Commissioner who took on US corporate titans General Electric and Microsoft, blocking GE's planned merger with rival Honeywell and imposing a record 497 million euro ($683 million) antitrust fine on the software giant. His technical expertise, sharp intellect and diplomatic skills added to his refusal to bow to intense lobbying pressures made him one of the most highly regarded officials the Commission has seen.
A similar technocrat government under former Bank of Italy official Lamberto Dini passed important reforms in 1995 and the hope of many outside Italy is that Monti can do the same.
Berlusconi’s Ignominious Exit
Berlusconi’s ignominious departure, amid much jeering and booing, might have satisfied many Italians fed up at his sordid lifestyle and the lurid scandals that surrounded him, but it still leaves open the question of what direction Italy must now take. The key objective was not just to get rid of a gaffe-prone prime minister or cleansing public life, but initiating measures to stabilize Italy’s fast-deteriorating economic situation.
If anything, Berlusconi, who ruled for 17 years, provided some political stability to a nation famous for its short-lived coalition governments, but could not, in the end, inspire confidence among his European peers or the global international financial markets.
Berlusconi has at last resigned under tremendous pressure from various quarters. He had lost majority support in Italy’s parliament owing to his poor handling of the major financial crisis in his country, with his popularity rating plummeting to 22 per cent. His seductive smile was no longer of any use to the Italians, who wanted the 75-year-old media-baron-turned-politician to go along with his Go Italy party.
In fact, people were sick of his rule, lasting 17 long years, as Italy, the third largest economy of Europe, had shown an average .75 per cent annual economic growth rate for over 15 years. With this level of economic achievement, the Italian government’s debt burden had been mounting faster than the rise in the country’s capacity to bear it. The crisis Italy is faced with today was only waiting to happen.
The irony is that the Italian economy, unlike Greece’s, is not inherently a weak one; but its mismanagement by Berlusconi’s government left a lot to be desired. He was seen as a liability that needed to be swiftly replaced; which he has been, by an economist. Europe isn’t out of the woods yet, nor is the euro’s future secure.
The crippling debt problem in Greece that led to European leaders substantially increase the European Union’s bailout fund is of little significance when one compares it with the Italian debt burden. But the fear that the Greek financial contagion could spread to other Euro zone economies is real. Italy must be saved as quickly as Greece to prevent the economic ailment affecting France, which will mean a financial catastrophe for the entire Euro zone.
Tough Task Ahead
Former European Commissioner Mario Monti, who has replaced Berlusconi, has a tough task ahead. He will have to go in immediately for austerity measures — a huge reduction in the government’s expenditure and more taxes — which may hit the middle classes but are unavoidable. This is one way to bring down Italy’s debt burden, 118 per cent of the country’s annual GDP — a very high level even by European standards.
Fortunately for the new government, Italian citizens are not as much burdened with debt as are the people in the troubled countries like Greece, Spain or the Irish Republic. Behind Italy’s inability to earn more than it spends are factors like poor financial regulation, vested business interests, weak investment projects and an ageing population. These problems can be handled successfully if the new Prime Minister gets all-out support from all those who matter.
The next election is not due until 2013 but there are widespread predictions Monti will not last until then, making way for polls once he passes the reforms promised to Europe.
After losing all confidence in financial markets, Berlusconi resigned as prime minister, as promised, after both houses of Parliament passed emergency austerity and reform measures with unusual speed.
President Giorgio Napolitano tapped Monti on 13 November to create a government capable of implementing economic reforms aimed at reviving stagnant growth to bring down public debt, stuck near 120 percent of Gross Domestic Product (GDP).
Improving market confidence in Italy is crucial to the future of the euro zone as the country would be too expensive to rescue. A default on its $2.6 trillion in debt would cause massive chaos in financial markets and shake the global economy.
In 1978, Berlusconi set up Fininvest, a holding company which grew to include several large household names, including Mediaset — with three national television channels — and AC Milan, one of the world's leading football clubs.
But poor investments saw his debts spiral in the early 1990s and critics say that Berlusconi — fearful a left-wing government would touch his powerful media conglomerate — entered politics not for ambition but to save his empire.
Italy’s Borrowing Costs
Monti went to work after a frenetic weekend of political activity, in which Italy’s Parliament approved a package of economic reforms agreed with European leaders, Berlusconi resigned and President Giorgio Napolitano appointed the respected international figure as head of a new government.
After a tumultuous week, when Italy’s borrowing costs rose to the kind of levels that saw Ireland and Greece forced to seek an international bailout, initial market reaction was positive, with both stocks and bond markets lifted.
Napolitano called for an extraordinary national effort to support Monti and win back the confidence of international markets, noting that Italy had to refinance some 200 billion euros of bonds by the end of April.
But once the initial boost from his appointment has passed, Monti will face a major challenge navigating the treacherous waters of Italian politics with clear signs of mistrust already emerging from the centre right.
Monti, a convinced free marketeer with a record of successfully taking on powerful corporate interests during his decade in Brussels, is expected to outline a policy program in line with demands made by Italy’s European partners.
Powerful Leader
Mario Monti made his name as the powerful Competition Commissioner who took on US corporate titans General Electric and Microsoft, blocking GE's planned merger with rival Honeywell and imposing a record 497 million euro ($683 million) antitrust fine on the software giant. His technical expertise, sharp intellect and diplomatic skills added to his refusal to bow to intense lobbying pressures made him one of the most highly regarded officials the Commission has seen.
A similar technocrat government under former Bank of Italy official Lamberto Dini passed important reforms in 1995 and the hope of many outside Italy is that Monti can do the same.
Berlusconi’s Ignominious Exit
Berlusconi’s ignominious departure, amid much jeering and booing, might have satisfied many Italians fed up at his sordid lifestyle and the lurid scandals that surrounded him, but it still leaves open the question of what direction Italy must now take. The key objective was not just to get rid of a gaffe-prone prime minister or cleansing public life, but initiating measures to stabilize Italy’s fast-deteriorating economic situation.
If anything, Berlusconi, who ruled for 17 years, provided some political stability to a nation famous for its short-lived coalition governments, but could not, in the end, inspire confidence among his European peers or the global international financial markets.
Berlusconi has at last resigned under tremendous pressure from various quarters. He had lost majority support in Italy’s parliament owing to his poor handling of the major financial crisis in his country, with his popularity rating plummeting to 22 per cent. His seductive smile was no longer of any use to the Italians, who wanted the 75-year-old media-baron-turned-politician to go along with his Go Italy party.
In fact, people were sick of his rule, lasting 17 long years, as Italy, the third largest economy of Europe, had shown an average .75 per cent annual economic growth rate for over 15 years. With this level of economic achievement, the Italian government’s debt burden had been mounting faster than the rise in the country’s capacity to bear it. The crisis Italy is faced with today was only waiting to happen.
The irony is that the Italian economy, unlike Greece’s, is not inherently a weak one; but its mismanagement by Berlusconi’s government left a lot to be desired. He was seen as a liability that needed to be swiftly replaced; which he has been, by an economist. Europe isn’t out of the woods yet, nor is the euro’s future secure.
The crippling debt problem in Greece that led to European leaders substantially increase the European Union’s bailout fund is of little significance when one compares it with the Italian debt burden. But the fear that the Greek financial contagion could spread to other Euro zone economies is real. Italy must be saved as quickly as Greece to prevent the economic ailment affecting France, which will mean a financial catastrophe for the entire Euro zone.
Tough Task Ahead
Former European Commissioner Mario Monti, who has replaced Berlusconi, has a tough task ahead. He will have to go in immediately for austerity measures — a huge reduction in the government’s expenditure and more taxes — which may hit the middle classes but are unavoidable. This is one way to bring down Italy’s debt burden, 118 per cent of the country’s annual GDP — a very high level even by European standards.
Fortunately for the new government, Italian citizens are not as much burdened with debt as are the people in the troubled countries like Greece, Spain or the Irish Republic. Behind Italy’s inability to earn more than it spends are factors like poor financial regulation, vested business interests, weak investment projects and an ageing population. These problems can be handled successfully if the new Prime Minister gets all-out support from all those who matter.
The next election is not due until 2013 but there are widespread predictions Monti will not last until then, making way for polls once he passes the reforms promised to Europe.
No comments:
Post a Comment