All the talk today is Italy, and how it’s now at centre of the Eurozone crisis again.The stock market is off over 3%. Borrowing cots are jumping.
The culprit is the return of political chaos, thanks to Berlusconi’s intent to run for PM, and Mario Monti’s announcement of his (slightly) premature resignation once the budget is passed.
What’s remarkable is how quickly a new conventional wisdom has solidified in Italy.
What everyone is saying is: Monti was always an unelected technocrat, who had no popular mandate to fix things. Furthermore, his austerity isn’t working, and what Italy needs is growth.
We’re seeing this all over the place.
“Politics have burst the Monti bubble,” says the FT’s Wolfgang Munchau:
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.
Bill Blaine of Mint Partners writes almost the same thing, that Italy had existed in a suspension of disbelief.
No one should be particularly surprised at how quickly Italy has gone from a minor wobble mumble swerve to full-blown political crisis – we’ve been warning it was likely to happen almost since the Monti coup last year. Exactly what the next stage of the game isn’t clear or even that important – Monti’s decision to resign may yet be countered by pleading Italian politicians begging him to stay.
Instead Monti’s resignation demonstrates how vulnerable the cozy suspension of disbelief on Italy has been. Elections in March? No clear winner? Berlusconi second highest in polls?
The real problem was Monti’s technocracy was simply delaying the inevitable: that at some point ugly Italian politics would come back to the fore. Despite giving the appearance of dealing with the Italy’s crisis, Monti was unable to build a clear consensus that could have kept him in power to enact real change. The Italian political opportunist class has been circling like vultures waiting the moment to strike.
Nomura’s Alistair Newton also warns investors of wishing that Monti might somehow retain power (he’s supposedly weighing an attempt to run for his current office):
That said, although markets would appear likely to welcome a ‘Monti bis’ election outcome of some sort, we do question whether this would actually be for the best. A government with solid democratic legitimacy in the form of a majority popular vote could have more leverage to pursue the sort of structural reforms which Italy urgently needs to boost growth – in our view, the real issue rather than debt and deficit reduction. In this respect we note that as economy minister in the 2006-08 Prodi administration, Mr Bersani promoted relevant reforms – albeit unsuccessfully at that time within the context of a divided and unstable left-of-centre coalition. It could be that, having secured the leadership of the BC coalition through a strongly contested primary election (in the wake of which the BC has united behind him), Mr Bersani would be better placed this time around, were he to secure an election victory, than he was five years ago and than a Monti-led government would be.
The old convention: Mario Monti is the reformer that Italy needs.
The new hotness: Mario Monti has been unable to deliver on growth, and how politics is roaring back to the fore.