Markets in Italy are freaking out today, mainly because of the pronouncement of one man, Silvio Berlusconi. The former Prime Minister plans to run for office yet another time, and Mario Monti, the current caretaker leader, has resigned, setting up new elections probably in February.
It’s true that Berlusconi, who was basically chased out of his leadership position by the international community in ways that the Italian law enforcement community could never accomplish, would not win the election based on current polling. His People of Liberty party obtains only 14-18% of the vote, compared to 30-38% for the center-left Democratic Party. There’s a third party populist movement known as Five Star which could win as much as 20% of the vote, and so any ruling coalition would have to be pretty broad.
But this polling doesn’t necessarily mean that Berlusconi has no chance, and that’s probably why the markets have seized up in the country. First of all, he’s still the richest man in Italy, someone who has defied expectations again and again. Plus, he’s likely to run on a populist, anti-austerity platform, specifically against the economic reforms of his predecessor, Mario Monti. That has the potential to be fairly powerful, if recent electoral history in Europe can be believed. Like the Greek elections, I would expect the European leadership to demonize Berlusconi as a precursor to instability and an exit from the Euro and whatever pain and suffering they can lard on from there. Unlike the Greek elections, the party being demonized will have the wherewithal to fight back.
I hardly hold any brief for Berlusconi, a corrupt tyrant who has been bilking the Italian public for well over a decade now. Alexander Stille’s book The Sack of Rome details this expertly. However, the fact that he was basically overturned by international bureaucrats in favor of an unelected member of their posse should not be lost here. Especially because that unelected bureaucrat, Mario Monti, did not really do that great a job if you look at key indicators:
I have always respected Mr Monti as a European commissioner and a wise observer of European affairs, but I am more sceptical about his performance as Italy’s head of government. The sometimes uncritical adulation he enjoyed was based on the notion that you could solve Italy’s problems by putting politics aside, imposing a few reforms and a lot of austerity. The consensus in Italy was that only a technocratic government could deliver these policies [...]
But Mr Monti’s year in office has been a bubble, which felt good for investors while it lasted but has deflated. And it will probably take Italians and foreign investors not all that long to realise little has really changed over the past year, except that the economy has fallen into a deep depression.
While Monti – with a giant assist from Mario Draghi’s backstop at the ECB – did stabilize borrowing costs for a time, the economy suffered with the austerity measures, growth went negative and unemployment rose. This is not the pedigree of a saviour of Italy. And it risks a return to power for Berlusconi, who has a long list of indignities forced on the Italian people by the last government to call on. He can merely say that Italians deserve a voice in their nation’s future rather than a set of policies imposed from the outside.
Monti wasn’t able to deliver on growth because his prescriptions inhibited growth. His obsessions with “reform,” aligned with the European leadership, ended up sinking Italy deeper into recession and depression, without building a coalition of support. And so the slightest shift can and will cause chaos, as we’re seeing today.
And incidentally, Italy is the third-largest economy in the Eurozone. If it wobbles, so do the other member states, as we’re seeing today.
Photo by Roberto Gimmi under Creative Commons license