Europe needs Mario Monti more than ever
Remember the euro crisis? For most of 2012, politicians, investors and business leaders were almost unanimous in their belief that the possible breakup of the euro would be a massive risk to the world economy. But today the euro is 5 percent higher against the dollar than it was six months ago, European stock markets have outperformed Wall Street by 11 percent in the same period, and Italian government bonds have been among the best investments of 2012.
The Nobel Peace Prize conferred this week to the European Union included three men who, under the EUâ€™s byzantine institutional structure, are all entitled to be called â€śPresident of Europe.â€ť With the award, it seemed as if the euro crisis might be almost over.
Silvio Berlusconi burst back onto the EU stage this month with his trademark chutzpah and slapstick timing, disparaging the technocratic government that has been given credit for putting Italy back on the road to financial prudence and thereby saving the euro.
By attacking Prime Minister Mario Montiâ€™s governance, Berlusconi reopened all the old arguments about the sustainability of a single currency in this quarrelsome club of 17 divergent nations. Italian shares, bonds and the euro all fell sharply. And in EU diplomatic circles, anxiety about another clash between Germany and the Mediterranean laggard nations reached a fever pitch.
Berlusconi, in the first major television broadcast of his new campaign, hinted at an anti-German campaign that may lie ahead. He attacked Monti for imposing â€śGerman-centric policiesâ€ť and accused Germany of sabotaging the Italian government by manipulating bond market â€śspreadsâ€ť (a word that may be now as familiar to most Italians as â€ściaoâ€ť or â€śprontoâ€ť). These spreads, Berlusconi said, were â€ścon-tricksâ€ť and â€śinventionsâ€ť designed by Germany to topple his elected government while German businesses and banks crushed their Italian competitors with artificially high borrowing costs. Guido Westerwelle, Germanyâ€™s foreign minister, retaliated immediately, which was perhaps unwise. Germany would not interfere in Italyâ€™s internal politics, he said, but there is â€śone thing we will not accept â€‘ that Germany should be made the target of a populist election campaign.â€ť
Westerwelle offered no clear example of how he would prevent Germany from becoming a â€śtargetâ€ť of Italian populism, a daunting challenge in a time when 83 percent of Italians believe that German influence in the EU is â€śtoo strong,â€ť according to a Financial Times/Harris poll. There are, however, two people who never hoped to achieve reconciliation: Monti and German Chancellor Angela Merkel. Given the political pressures facing both of them, such a rapprochement could be a surprising outcome of Italyâ€™s election campaign.
Berlusconi overplayed his hand by triggering an early election. His People of Freedom party is 20 points behind Pier-Luigi Bersaniâ€™s socialists, who back Montiâ€™s reforms, and the smaller center parties also support Monti. This support is likely to weaken next year as new taxes kick in, but an election in February leaves little time for anti-tax resentment to intensify or for Berlusconi to rebuild his creaking political machine and restore his image as a plausible leader rather than a priapic buffoon.
The upshot is that Montiâ€™s reforms now have a good chance of winning a proper democratic mandate. If this were to happen, Monti could make way for Bersani as prime minister and get himself elected president of the republic, replacing the 87-year-old Giorgio Napolitano. The Italian presidency is mostly ceremonial, but it becomes powerful during constitutional crises, which occur in Italy roughly once a month. Montiâ€™s elevation to the presidency would be welcomed by the German and European establishments, which would see it as a guarantee of political stability and commitment to reform.
There is an even more important question than who rules Italy, which is: What does Europe really mean by â€śeconomic reform?â€ť If reform means never-ending austerity and tax hikes, which is essentially what Berlusconi contends, then the Italian people will probably vote against it. If, on the other hand, it means opening the economy to competition, reducing oppressive bureaucracies and confronting vested interests, then voters are likely to support it. Montiâ€™s centrist supporters should insist that Italyâ€™s financial credibility has been restored to the point where austerity is no longer needed. In the next stage of the reform process, tax cuts and fiscal easing should accompany growth-promoting structural reforms.
It is probable that the International Monetary Fund, the European Commission and the European Central Bank would support a pro-growth reform program for Italy that combines deregulation with some moderate fiscal stimulus. The only real obstacle is the German government, which often confuses reforms such as deregulation of competition with the need for austerity. Monti has done more than any other EU politician to persuade Merkel that competitiveness and austerity are not the same thing. His quiet diplomacy, which created a united front against excessive austerity with France and Spain, has been far more successful in shifting the European debate than Berlusconiâ€™s grandstanding.
While Montiâ€™s efforts to soften German-inspired austerity have not yet succeeded, Merkel faces an election of her own next year. This will make her more vulnerable to diplomatic pressure, since the last thing Germany wants is another outbreak of the euro crisis. Next year will be the ideal time for a sensible Italian leader to ease Europeâ€™s austerity bias by uniting with France and Spain, something Berlusconi could never manage with his farcical anti-German antics. If overtaxed Italian voters feel that austerity has gone too far, they should elect a leader who simply says â€śbasta.â€ť There is no need for â€śbunga-bunga.â€ť
PHOTO:Â Prime Minister of Italy Mario Monti listens to a speaker during the Nobel Peace Prize ceremony at City Hall in Oslo December 10, 2012.Â REUTERS/Suzanne Plunkett