Technocracy’s new bet: Mario Monti runs for premiership

The rationale of Monti’s proposals in Italy is “not so different from Cameron’s austerity programme in the UK”.

Mario Monti
Mario Monti's government "did nothing to alleviate the lending crisis" that started in 2008 and negatively affects many productive SMEs that "desperately need credit to keep afloat" [Reuters]

Mario Monti’s decision to run for premiership as leader of a centrist alliance in the next Italian general elections will have wide-ranging effects on the future of Italian politics. His entry into the political arena will provoke major re-alignments in strategies, programmes and personnel in the centre-right and centre-left coalitions. His ambitious agenda of reforms will strongly influence the policies of the next government. 

To fully understand the extent of these changes, we also need to look back over the past year. Has the technocratic government achieved its intended goals and why is there still so much pressure from national and international quarters for Monti to stay on? 

Rise and fall of the technocratic government 

In the second half of 2011, in an international context already marked by fears of contagion following the Greek debt crisis, worries about Italy’s ability to sustain its enormous national debt spread quickly among investors. Berlusconi’s government, with its reputation tarnished by scandals, pending court cases and political infighting, did not offer the reassurances needed by the markets. 

In November 2011, Italian 10-year bond yields rose above 7 percent. The international consensus was that this rate was unsustainable for a highly indebted country like Italy: the country was headed towards a default on its debt repayments. The size of Italy’s economy meant that a wholesale bailout by the EU and the IMF was simply not an option. Such a scenario could indeed precipitate a financial crisis in an already vulnerable eurozone. 

While Berlusconi was not deemed fit to govern by the international community, holding general elections straight away would have aggravated Italy’s political instability. The centre-left opposition was as unprepared as Berlusconi’s centre-right coalition to guide Italy through such a delicate phase. 

After consulting all parties represented in parliament, the President of the Republic Giorgio Napolitano appointed Mario Monti as Prime Minister on November 13, 2011. He was to lead a technocratic government composed by unelected experts, supported in parliament by Berlusconi’s People of Freedom Party, the centrist Christian Democrats and the reformist centre-left Democratic Party. 

His mandate was clear: to implement drastic measures to reduce national debt and far-reaching structural reforms to liberate internal markets from the stronghold of state dependence. All this was to be achieved in little more than a year, before the natural end of the legislature. This “undemocratic” solution orchestrated under strong pressure from the EU and international financial markets was backed by the vast majority of Italians, animated by a deep lack of trust in the ability and good faith of their national politicians. 

Only 13 months later, on December 6, 2012, in a surreal twist of events, Berlusconi’s People of Freedom Party withdrew its support for the government. The apparent reason was the mounting indignation of the party MPs against the “partisan” words of the Minister of Economic Development Corrado Passera. 

In a popular TV show, he provided a negative assessment of Berlusconi’s intention to run for premiership in the forthcoming elections. The truth is that Berlusconi just started his electoral campaign, gaining media attention with a sensational, if destructive, gesture. By withdrawing his support on a whim, he sent a clear message that he was not going to let go of his hold over Italian politics. Without a clear majority in parliament, Monti resigned on December 21, 2012, after the approval of the budget law avoided catastrophic effects on the stock markets. 

Structural reforms? Thanks, but no thanks 

International observers were bewildered. Why was Monti resigning now, merely two months before the statutory end of his government? Only a month earlier he had proudly showcased the successes of his government to investors and political leaders in a visit to the Gulf Region, stressing the crucial role that his economic reforms played in restoring market confidence. Up until his decision to resign, the consensus of the mainstream media closely reflected this position. 

This too has quickly changed. Presenting the arguments of authoritative Italian economists who are not at all hostile to Monti’s proposed reforms, reputable analyses recently appeared in the international media (read here and here) are now communicating to the outside world what was already evident to Italian observers: Monti’s government has not delivered on its programme of structural reforms. And yet, the impression he so skilfully mastered on the international scene throughout the past year restored credibility in the Italian political system. 

The first month of government was the most productive. The budget law approved at the end of December 2011 fundamentally reformed the pension system, aligning it with Nordic European countries and producing long-term positive effects on public spending. The same law also significantly increased taxation for ordinary Italians, including the introduction of a much resented tax on first homes – with no exemptions for lower incomes – and a substantial VAT rise. At first, these measures were seen by most citizens as “necessary” given the dramatic situation of Italy’s public finances. 

However, in the succeeding months, popular consensus for the Italian technocrat waned. People lost sympathy for a government that increased taxes without providing any other relief in an economic environment characterised by high unemployment and negative growth. The absence of concrete measures to stimulate growth and help small and medium enterprises (SMEs) – the blood of the Italian economy – also contributed to his decline of popularity. 

His government did nothing to alleviate the lending crisis that started in 2008 and negatively affects many productive SMEs that desperately need credit to keep afloat. Italian banks preferred to use massive injections of liquidity from the European Central Bank to buy Italian bonds. This contributed to keep national borrowing costs low during Monti’s tenure but had no direct positive effects on the real economy. 

The other reforms approved by the parliament in 2012 look more like the half-baked measures introduced by previous governments than the required structural reforms initially announced by Monti. 

The liberalisations were mostly cosmetic and did not produce major improvements in competitiveness and market transparency. The number of licences available for pharmacies and taxi drivers was increased, for instance, without de facto opening up these markets to competition. 

Strategic sectors like energy and transportation were not included in the legislation. Italy’s internal markets are still in the hands of oligopolies and closed shops. Too many people live at the margins of an economy that does not fairly redistribute its gains according to skill and effort. 

The labour market reform was not far-reaching either. It did not simplify an inordinately complex and inefficient system of labour contracts. It extended unemployment benefit coverage to some previously unprotected workers, but left Italy among the very few European countries without a universal unemployment subsidy. 

Monti’s labour reform did not significantly address the enormous disparities in social security between permanent workers and the increasing numbers of workers under short-term contracts. Low salaries, excessive red tape and unequally distributed social protection, continue to shape Italy’s labour market, just as they did one year ago. 

The spending review programme, aimed at rationalising the way state resources are utilised and managed, ended up in a bluff. Following the path of Berlusconi’s Minister of Economy and Finance, the government executed modest linear budget cuts, without a proper review of their impact on service delivery. 

The incredibly high costs of Italian politics, ranging from exorbitant salaries, allowances and pension privileges for elected officials in local and national government to generous subsidies for media, newspapers and other organisations controlled by political parties, were not on the whole affected. 

A proposal to reduce the number of Italian provinces, intermediate local governments devoid of effective power and bearing huge costs for the taxpayer, did not make it into a parliamentary vote. Despite all the talk, Monti’s austerity meant higher taxes and short-term minor reductions in public spending to keep the deficit in line, but very little in the way of structural adjustments with long-term effects. 

Finally, the anti-corruption law was one of the “highlights” of the last days of the technocratic government. Corruption is a particularly sensitive theme for national and international investors. Its notoriously high levels have a negative impact on the successful and lawful conduct of business activities. The new legislation introduces harsher punishments for corruption crimes and extends its reach to new areas of corruption previously excluded. 

However, these changes have been made within the wider context of a highly inefficient legal system. Italian courts are slow and cases are frequently dropped without a definitive sentence because of statutory time limits on the prosecution of crimes. A full overhaul of the legal system is required for measures like the anti-corruption law to achieve its intended benefits. Monti did not tackle any of these structural issues. 

Each reform announced by the technocratic cabinet was diluted by strenuous negotiations with political parties, professional and employers’ associations, trade unions and other corporatist interests. The drawn out process of parliamentary approvals further weakened the proposed measures. Amendments at the hand of parliamentary committees finally succeeded in neutralising any prospect for real change. 

Nor was the selection of the cabinet members as transparent and meritocratic as Monti claimed. The experts who were called in to inject new life into the system came from the ranks of minister directorates, public organisations and industry and banking elites who had been so integral to Italy’s relentless decline. They were not immune from the “vices” of Italian politics. 

For instance, the controversial Minister of Labour, Elsa Fornero, made it a point to present herself as an icon of Anglo-Saxon rigour. In her public appearances, she often “disciplined” Italian youth for their unwillingness to adapt to global change.

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In line with the nepotistic practices of Italian academia, she holds a professorship in the same university where her husband and daughter occupy permanent positions. Elsa Fornero was also vice-president of a prestigious Italian foundation, Compagnia di San Paolo, at the time when her daughter Silvia received research funds from the same organisation.

One of Monti’s junior ministers resigned because of his connections with an entrepreneur investigated for corruption. Another junior minister resigned after receiving notice of investigation for tax fraud. There is no doubt that the conduct of cabinet members was on the whole well above the appalling standards of the preceding government. Yet, Monti’s team offered no radical break from the past. 

Monti’s new bet 

Since he announced his decision to run for premiership in the February 2013 general elections, Monti’s message has changed. Sensitive to the scrutiny of international observers, Monti knows that he cannot continue with an overtly positive assessment of the current state of affairs. He now admits that much more needs to be done to transform the political system and stabilise the economy. 

The argument is that the pace of reform has been slowed down by the lack of conviction of the parliamentary majority that backed his government and the outright opposition of many divergent interests – ranging from Berlusconi’s refusal to support legal reforms that would negatively impact on his activities, to left-wing resistance against a radical restructuring of the labour market and the welfare state. 

What is the solution to this impasse? To legitimise the Monti Agenda – a 25 page programme available on the internet – through the democratic process. A coalition of centrist parties, business interests and civil society movements have now endorsed the agenda as their political programme in the next general elections. Technocracy cannot succeed where politics failed. 

European political elites and the international financial world see Monti’s transformation into a frontline politician as a viable solution to reassure markets that Italy will not default on its national debt repayments, and will undertake the structural reforms indicated by EU technocrats. 

Despite these hopes, it is in the short and medium term that Monti’s entry into the democratic contest will have the strongest effects. His candidacy for premiership is supported by the Christian Democrats, a civil society movement of reformists and Catholics named Future Italy, segments exiting Berlusconi’s People of Freedom Party, and elements leaving the centre-left Democratic Party. 

He is not running to win the elections and hence is unlikely to become the next Italian Prime Minister. Polls assign to his coalition no more than 20 percent of the votes. However, the current electoral law assigns no clear majority prize in the Senate, one of the two elected houses of parliament. It is highly probable that the centre-left coalition – leading in the polls with 35 percent to 40 percent of the votes – will need to seal a post-electoral alliance with Monti’s coalition to form a stable government. 

This scenario would trigger deeper changes in the political landscape. Monti’s political wager will possibly accelerate the process of disintegration of the moderate centre-right under Berlusconi’s leadership. The Italian tycoon is well known for sudden shifts in policy and rhetoric. He is now riding the wave of populist anti-EU and anti-austerity sentiments and his party might secure around 20 percent of the votes. These numbers are a far cry from previous election results, but will enable Berlusconi to play a major role in the next parliament. 

The price to pay is the dwindling support of moderate voters who have been the backbone of his success since 1994. Monti is the real enemy here. Unlike the centre-left, he has not fallen into the old trap of embracing a strong anti-Berlusconi stance. This effectively marks the end of an era when each national election would play out as a referendum pro or against Berlusconi. 

At the same time, Monti’s centre could destabilise an already fragile centre-left coalition. The policy ambiguities that marred the efficacy of centre-left governments in 1996 and 2006 have not been addressed. The leading party, the Democratic Party, includes explicitly pro-Monti elements alongside ex-communist factions wary of Monti’s neoliberal positions. 

Furthermore, the Democrats are allied with the post-communist party Left Ecology Freedom, led by Nichi Vendola, a charismatic politician who openly opposes Monti’s policies. A post-elections deal with the centrist coalition has the potential to radicalise these internal tensions and neutralise the post-communists’ influence over the next government. 

In the long run, it might also contribute to the gradual emptying out of the Democratic Party: the lack of a clear consensus on a coherent programme of reforms is hindering the party’s internal cohesion. Influential MPs have already left to join Monti’s group. Other sections traditionally aligned with the ex-communist trade union CGIL might move further left on the political spectrum. 

The effects of these re-alignments will probably be exacerbated by the increasing fragmentation of the political landscape. Running for the first time in general elections, the anti-establishment 5 Star Movement will capitalise on popular discontent and is expected to obtain between 15 percent and 20 percent of the votes. Led by activist comedian Beppe Grillo, this political formation is positioned on radical anti-EU, anti-austerity and anti-corruption stances.

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Grillo made it clear that his movement will not pursue strategic alliances with any other party, but push for radical change through parliamentary action. Mounting dissatisfaction with traditional democratic mechanisms will also be reflected in what is likely to be the lowest voter turnout in republican history: undecided voters, abstentions and blank votes are currently estimated between 30 percent and 40 percent. 

Supported by a relatively small fraction of the electorate, Monti’s proposals seem destined to maintain their monopoly over Italian mainstream politics for some time. The problem of democratic legitimacy posed by the arrival of an unelected technocratic government will remain, in another form. 

Will Monti change Italy? 

Not surprisingly, many Italians are asking pressing questions that reach beyond the elaborate chess games of professional politics: is the Monti Agenda suited for the task ahead? Will it bring about structural reforms and make Italy’s public finances more sustainable? Will it contribute to establish a more equitable and meritocratic internal market? 

There are two major factors that will work against the effective implementation of Monti’s programme. For one, Monti is likely to encounter the same internal obstacles that undermined the efforts of his first government. The main resistance to change will come from the very system he is now endorsing by running for premiership: that complex web of vested interests represented by political parties and other social blocs, in particular professional associations, industrialists and trade unions. Their basic political instinct is to oppose any significant alteration of the status quo. 

The parties and movements behind Monti’s political project are an integral part of this system. We do not know whether they are really willing to forego short-term gains and abandon fortified positions to help generate real change. Based on past and recent behaviour, the likelihood of achieving these aims through a reformist consensus seeking approach is rather low. 

During the electoral campaign, ambiguous entanglements with entrenched interests will increase. Monti and his team will get their hands dirty in real life politics, chasing votes, striking local and national deals with various factions, following polls and media ratings, adjusting promises and aspirations accordingly. There is a high chance that many of the agenda items will be compromised in the process. 

The other reason has to do with basic macroeconomics. Monti is proposing high-reaching targets on debt reduction: 5 percent reduction in national debt stock per year from 2015 until the total stock is reduced to 60 percent of gross domestic product – currently it is standing at 126 percent. This would only be possible with high growth, coupled by painful cuts in public spending. 

The rationale of Monti’s proposals is not so different from Cameron’s austerity programme in the UK: free up the market, reduce the weight of government and let the economy adjust itself. 

But the prospects for the global economy, especially the eurozone, look grim. European economies will grow slowly, if at all, for many years to come. Italy has struggled with low growth rates for the last two decades. Why should we believe that wide-ranging Thatcher-style market reforms will stimulate high growth in such a conjuncture?

There is also a major difference with Britain. Italian workers receive very low salaries compared to most of their European counterparts. Further liberalisation without a comparable rebalancing of social protection would effectively mean a low-cost economy driven by cheap labour, reduced quality and quantity of social services and rising socio-economic inequalities. 

For both these reasons, the continuation of the technocratic agenda by political means is unlikely to result in anything more than a face-lift. Two Italian commentators referred to the excitement around Monti in international circles as the “Monti bubble”, comparing it to a financial bubble. 

His electoral debut might sustain the bubble, keeping confidence in the Italian government artificially high and interest rates on Italian bonds low. But for how long? Monti is aware that his decision to enter frontline politics “carries many risks and a high probability of failure”. If he does fail, how bad will the next collapse in international credibility hit Italy and its people? 

Vito Laterza recently completed his PhD in Social Anthropology at the University of Cambridge and is currently a Research Fellow at the University of the West of England. His research focuses on political, economic and socio-cultural issues in Africa and the West, from a global geopolitical perspective.

Follow him on Twitter: @vitolaterza09