Scheherazade S. Rehman is a professor of international finance/business and international affairs at The George Washington University. You can visit her homepage here and follow her on Twitter @Prof_Rehman.
"2013 Italian elections and Silvio Berlusconi." I never thought I would say that in the same sentence. Who would have thought any of this was feasible only a few weeks ago?
Thirteen months ago Professor Mario Monti was brought on as prime minister to oversee the technocrat unelected Italian government after Silvio Berlusconi (former Italian prime minister) was unceremoniously kicked out of office. Monti saved Italy from a southern European style sovereign debt crisis and perhaps even saved the euro—because Italy is too big to fail or save. Monti took on this Herculean task with his brother in arms Mario Draghi, governor of the European Central bank. Now Monti has resigned and he will leave office after the 2013 Italian budget law is approved (in all likelihood before the end of this year). Italian elections will probably be held in mid-February sometime.
The reforms in Italy are working, albeit slowly, but the people are very restless to say the least. The good news—yes there is some—is that Italians are not as financially overstretched as their southern counterpart Spain. For example, Italian mortgage debt is only 19 percent of gross domestic product compared to 63 percent in Spain. More good news, Italians are significantly less leveraged than their southern counterparts as a country. Yes, we know Italy is famous for its very large public debt problem but total debt i.e. bank, corporate, and household debt is low comparatively to its neighbors. Also Italian banks unlike their Spanish counterparts are under less deleveraging strain. So the main short-term risk is political risk and uncertainty. In the medium- to long-term Italian productivity must increase as must its overall competitiveness and sustainability of debt—that is a long and difficult path. Monti has started Italy on this difficult path paving the way for the next generations of Italians and expectedly so it has been a big strain on pensioners and the youth of today. Italy cannot be fixed in a year—Monti needed more time. The next government must continue to carry out the reforms. I am worried.
There may yet be salvation…Monti could run as an elected official. This could shake Italian politics to the core and polarize the election debate for two reasons; first, because Monti, if he runs, will eat up the moderate "undecided" voters which will particularly impact the center-left Democratic Party (under the new leadership of Pier Luigi Bersani) which had a much better chance at the 2013 election booths than Berlusconi's People of Liberty (center-right party). Second, because Berlusconi's anti-austerity and anti-German mega media rant is taking on steam and might bring back the specter of World War II rhetoric of Germany's influence in the Europe Union as an election lightening rod. Italy's future depends on whether there is a center-left government voted into power that continues the reforms and budget controls—if that does not happen and we end up with a loose centrist coalition government then I think the whole reform path is probably going to unravel…and with it the hard fought uphill battle for continuing stability of the eurozone. There is a lot riding on the Italian elections for the whole world.
The key problem of pinning hope on Mario Monti running as an elected official is that he is a hero outside of Italy, not inside. Austerity measures (spending cuts), tax increases, high unemployment, and domestic demand (consumers spending) taking a hit have made him a scapegoat for the Italy economic mismanagement over the last two decades. If Monti runs for election, in all probability Italians will not vote him into office. While they all respect Monti for refurbishing Italian credibility they do not like the pain he is causing them. Enter stage-left Silvio Berlusconi promising to make "Italy Italian again…" whatever that means. Either way I think there is hope that Monti's steady hand will guide Italy's economic future through some venue.
So, no one knows what is going on or what will happen. Not unusual for a country whose politics for the last two decades have been influenced by the antics of one man (Berlusconi) and has left most Italians and non-Italians alike simply shaking their heads in disbelief. Having said that, most Italians are angry and fed up and want to go back to the good old days…maybe Silvio is on to something? Unfortunately the next government will face the classical horrible dilemma of growth, development, and crisis. "Do I look after you (the current tax payer) right now or do I look after your children's children? Pick one because I cannot do both…" Guess which one Silvio is peddling.