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Italy charm offensive more on style
Published in The Saudi Gazette on 11 - 02 - 2012


Reuters
The enthusiasm surrounding Mario Monti is excessive. He has not had time to address Italy's problems seriously, never mind fix them.
Yet he is feted by world leaders and the international press who treat him as the saviour of Italy and probably the euro zone.
Monti, with his economists' training and measured, articulate manner, is certainly impressive, and the contrast with his much lampooned predecessor Silvio Berlusconi puts him in a still brighter light.
About two weeks ago, he even received a prize as European of the Year in the French parliament, yet Italy's strengths and weaknesses are exactly the same as before he took office in November and its near term economic outlook has actually weakened sharply.
Monti has so far done very little to improve Italy's medium term growth prospects, which is the only way the country can hope to sustainably lower its huge public debt, equal to around 120 percent of output.
Instead, he has tightened already extremely tight fiscal policy in a probably vain attempt to balance the budget in 2013 and - if his latest steps are approved by parliament - slightly opened up some very marginal corners of the service sector.
The charm offensive launched by Monti and his team to woo markets and opinion makers is highly reminiscent of a similar drive in the 1990s that helped Italy join the euro currency from its launch.
Then, as now, a group of market-oriented, English-speaking policymakers visited the London's financial district and held briefings for the foreign media to explain reforms and assuage concerns.
For Monti, read former Prime Minister Romano Prodi or his economy minister, Carlo Azeglio Ciampi, and for current Treasury chief Vittorio Grilli, read Mario Draghi, now president of the European Central Bank.
Then, as now, the goal was to bring down prohibitively high borrowing costs and persuade Germany of the country's merits, with current Chancellor Angela Merkel personified by the then notoriously rigid finance minister Theo Waigel.
Italy's bond yields plummeted just as they are falling now, allowing it to join the currency club, but then, as now, the enthusiasm was premature and failed to appreciate that the country's fundamental competitiveness problems were unresolved.
When Italy is in trouble it wheels out the technocrats, and because it has always produced hugely able, cosmopolitan figures such as Monti, Draghi and Ciampi, the world is duly impressed.
Yet Italy's problems are ones of substance not of style, and they will take years to resolve whoever briefly takes the reins when the crises become most acute.
Italy's chronically sluggish economy is weighed down by corruption, tax evasion, organised crime, a low birth rate, impoverished south, poor education levels, inadequate infrastructures and a huge public debt.
The list could go on, with each economist having his or her own view over which is most serious, from a dysfunctional justice system, to oppressive bureaucracy, to an inefficient labour market and dismally low employment rate.
This is the real Italy, or at least a huge part of it, and Monti would probably need two five-year terms to really change it.
Instead, he will be around for a year at best, before the career politicians take over again.
In the meantime Italian benchmark bond yields have fallen from an unsustainable level of close to 8 percent in November, just before Monti took over, to well below 6 percent. But this may have more to do with the European Central Bank than Italy's prime minister.
“The markets are more concerned with the actions of (ECB President) Draghi than those of Monti,” said Spiro Sovereign Strategy director Nicholas Spiro, in reference to cheap 3-year loans from the ECB giving banks handsome profits if they buy high yielding Italian bonds.
A Reuters quarterly survey of 20 economists last month showed Monti's arrival has certainly not boosted expectations for Italy's near term prospects for growth or public finances.
The 2012 GDP forecast plunged to -1.2 percent from zero in the previous poll, while the budget deficit was seen at 2.2 percent of GDP, virtually in line with 2.3 percent previously and well above the government's goal of 1.6 percent.
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