Opinion

Hugo Dixon

Italy’s Letta makes best of bad job

Hugo Dixon
Jun 24, 2013 08:26 UTC

Italy’s new prime minister, Enrico Letta, is making the best of a bad job. After February’s inconclusive election, it looked like Italy’s dysfunctional political system might drag the country further into the abyss. There was a risk that nobody would be able to form a government, new elections would be called and that even these would end in a stalemate.

In the end, a grand coalition was formed involving Letta’s centre-left Democrats, Silvio Berlusconi’s centre-right PDL and Mario Monti’s centrist group. Putting together such a coalition was itself an achievement – given that the Democrats and Berlusconi hate one another and that the Five Star Movement, led by comedian Beppe Grillo, refused to make deals with anybody.

Even after the coalition was formed – largely as a result of pressure from Giorgio Napolitano, Italy’s respected octogenarian president – there wasn’t much hope that it could achieve anything. But Letta has been quietly getting on with reform, as I discovered when I spent a few days in Italy last week. Part of the explanation is that he is an intelligent, modest, consensus-builder rather than a charismatic figure with a big ego.

Moreover, none of the big beasts of Italian politics, notably Berlusconi, is in Letta’s cabinet. The prime minister, who is not even leader of his own party, keeps a fairly arms-length relationship with the political leaders. This gives his government a semi-technocratic flavour, not vastly dissimilar from the Monti government it replaced.

The worry is that these qualities could be a source of Letta’s ultimate undoing. Although he is popular now, the same was true of Monti in his honeymoon period. Letta has yet to prove he can push through, let alone sell, any real tough reforms.

Turkey’s economy is vulnerable

Hugo Dixon
Jun 17, 2013 10:06 UTC

Tayyip Erdogan seems to like the concept of “choking” things. At the weekend, Turkey’s prime minister sent riot police into an Istanbul park with tear gas and water cannons to clear out the protestors. A week earlier, he had threatened to “choke” an alleged “high-interest-rate lobby” of speculators who wanted to push interest rates up and suffocate the economy.

Erdogan’s harsh actions against protestors and harsh words against investors could backfire economically. The country depends on foreign investors to fund its big current account deficit. If they turn tail in response to the mounting unrest, interest rates will indeed have to rise.

The protests which began two weeks ago over Tayyip Erdogan’s alleged authoritarianism, triggered by the prime minister’s insistence on bulldozing one of Istanbul’s few public parks, initially alarmed investors. The stock market plunged, the lira fell and government bond yields spiked. Then, after the central bank intervened in the foreign exchange market and Erdogan offered concessions last week, investors calmed down.

Euro zone mustn’t flunk bank cleanup

Hugo Dixon
Jun 10, 2013 08:31 UTC

One reason the euro zone is in such a mess is that it hasn’t had the courage to clean up its banks. The United States gave its lenders a proper scrubbing, followed by recapitalisation, in 2009. By contrast, the euro zone engaged in a series of half-hearted stress tests that missed many of the biggest banking problems such as those in Ireland, Spain and Cyprus.

In recent years, the zone has started to address these problems on a piecemeal basis. But it is still haunted by zombie banks, which are not strong enough to support an economic recovery.

The European Central Bank now has a golden opportunity to press the reset button in advance of taking on the job of supervisor in mid-2014. It mustn’t flunk the cleanup.

Arming Syrian rebels fraught with risk

Hugo Dixon
Jun 3, 2013 09:04 UTC

The UK, France and maybe America are edging towards a policy of arming Syria’s “moderate” rebels if planned peace talks with the Assad regime don’t produce a breakthrough. The idea would be to tilt the civil war in favour of moderates and against both Assad’s Iranian-backed regime and al Qaeda-style jihadists. But the scheme, while superficially attractive, is fraught with risk.

The West’s three nuclear powers clearly don’t have much appetite for intervention in Syria. Nobody is pushing for an Iraqi or Afghan-style invasion. There is also precious little desire to impose a Libyan-style no-fly zone – not least because it would be impossible to get United Nations’ authority for such a policy given Russia’s steadfast support for the Assad regime.

The West is anyway struggling to clarify why it should get involved in this increasingly grisly sectarian war. Syria doesn’t have much oil or gas, unlike Libya and Iraq. Nor is Assad threatening the West with al Qaeda-style attacks. It could even be argued, on the basis of realpolitik, that it could be in the West’s interests if Sunni jihadists and the Iran-Assad-Hezbollah Shi’ite axis exhausted each other in an orgy of mutual destruction.