NEWLY INSTALLED Italian prime minister Mario Monti returned home to Milan yesterday morning. After two intense weeks of Rome politics, the prime minister opted for a change of air, availing of the opportunity to get his hair cut with his regular Milanese barber, Romano.
As he stepped out of the barber’s shop to be greeted by reporters, the prime minister typically had no comment to make. However, after a Friday that saw bond yields on short-term Italian debt rise to a euro-era record of more than 8 per cent, attention will focus this week on another type of “haircut” altogether. Namely, the emergency budget due to be presented to Monti’s cabinet of academics and technocrats, exactly one week from today.
As if last Friday’s dramatically negative market performances were not bad enough, Italians yesterday received further confirmation of the gravity of the moment when the Turin daily La Stampa revealed that the IMF had prepared a €600 billion “Programme Italia” rescue fund. According to La Stampa, the seeds of the plan were laid at the Cannes G20 Summit earlier this month.
The basic idea would be to give prime minister Monti a window of 12 to 18 months during which he could implement his expected mixture of severe budget cuts and genuine growth-boosting reforms “by removing the necessity of having to refinance the debt”. The IMF would guarantee rates of 4-5 per cent on the loan, much better than the borrowing costs on commercial debt markets where two-year and five-year Italian government bonds have risen to above 7 per cent.
Further dramatic signals came Italy’s way yesterday via French president Nicolas Sarkozy. In a note in which he confirmed both his own commitment and that of German chancellor Angela Merkel to “support Italy”, Sarkozy added ominously: “It is up to Italy to do that which it has promised to do. No one has any doubts about Rome’s commitments.”
In his first days in government last week, prime minister Monti twice “travelled north” for EU meetings in Brussels and Strasbourg. The idea, largely successful, was to put a reassuring and respectable face on an Italy that had been besmirched by his controversial, scandal-ridden and increasingly incompetent predecessor, Silvio Berlusconi.
Monti is expected in Brussels for a Eurogroup meeting tomorrow and an Ecofin meeting on Wednesday where the matter of a “secret” EU stability plan, based on a two-speed Euro and promoted by Germany and France, may be on the agenda, according to Italian media speculation. Again, Italy is likely to find itself the uncomfortable focus of attention as EU partners press for details on the forthcoming Monti “haircut”.
Meanwhile, back home Italian politicians from both sides of the political divide have begun to complain that Sarkozy and Merkel now know more about the upcoming Italian budget than they do. Due to be presented before the EU summit of December 9th, the €20-25 billion budget is expected to include a reimposed property tax, pension reform, a wealth tax, a VAT hike and greater flexibility of labour legislation on firing and hiring.
However, that budget will have to pass through a parliament where Berlusconi’s PDL still has a majority.
Speaking in Verona yesterday the ex-prime minister, who said he is now working for victory in the next elections, also called a proposed Monti tax evasion measure, “worthy of a fiscal police state”. Difficulties clearly lie ahead for Monti.