Italy is back in town as 'Merkozy' circle opens for Monti

Thu, Feb 2, 2012, 00:00

EUROPEAN DIARY:The Italian prime minister’s ascent comes as senior Europeans perceive a weakening of the contentious alliance between the German and French leaders

EVEN THE sternest faces in Brussels brighten at the mention of Mario Monti, Italy’s technocrat prime minister.

Charged with steering his country clear of the bailout zone, he is perceived to have made a good start since taking office in November.

This is crucial for the euro zone at large. Although no-one says it publicly, the fear remains that an implosion of Europe’s third-largest economy could shatter the single currency. It follows that Monti has a lot more on his shoulders than the salvation of Italy.

He is the anti-Berlusconi. If Silvio came to be seen an unreliable figure of ridicule, Monti is quite the opposite. To Berlusconi’s scandalous Mr Incredible, he is steady Mr Credible. “Italy is back in town,” says a Brussels insider of high rank.

Monti’s influence operates on a number of levels. On the home front, his rapid drive to reform the moribund domestic economy has helped ease some of the pressure on Italian debt. This is despite a blunt credit-rating downgrade by Standard Poor’s.

In December, he introduced a €30 billion package of budget cuts and tax hikes and raised the retirement age. He followed that last month with an initiative to open heavily protected Italian professions to competition. The taxi drivers of Rome were less than impressed.

In the background, of course, is the unseen hand of the European Central Bank. Now run by Monti’s fellow-Italian Mario Draghi, the ECB has been buying Italian bonds intermittently since last August.

Its interventions are held to have played a key role in righting the ship since Monti’s arrival in office, just as a perceived lack of interventions last autumn put pressure on Berlusconi. The influence of the bank, which has the power to turn the tap on or off, is not to be underestimated.

Away from Rome, Monti has the clout to be admitted into the Merkel-Sarkozy circle and the courage to challenge publicly the German chancellor to change core tenets of her European policy. He is also in the vanguard of those seeking to redirect political debate towards measures to stimulate economic growth.

There are nuances here. Monti’s ascent comes as senior Europeans perceive a weakening of the contentious “Merkozy” alliance between the German and French leaders. The beam simply isn’t as bright as it once was, they say.

The new fiscal treaty stands as a Merkel-inspired initiative, not a joint project with her ally in Paris. Furthermore, the core element of their infamous Deauville pact disappeared two months ago when EU leaders dropped a demand for private creditor contributions to all bailouts by Europe’s permanent rescue fund.

With his personal support levels at a low ebb, Sarkozy faces a difficult presidential election this spring. Although he portrays himself as a European man of action sans pareil, there will be less scope for grandstanding with the chancellor during the campaign proper.

There is more. Unlike most recent EU gatherings, there was no bilateral meeting between Sarkozy and Merkel before the start of European business at last Monday’s summit. Instead, the two of them met Monti for half-an-hour and entered the summit room with him. It was not the trio’s first meeting.

To some eyes at least, Monti’s call for eurobonds and bigger bailout funds puts him in league with Sarkozy. But that is to dismiss the Italian’s reformist verve, which chimes more with attitudes in Berlin than Paris.

Monti’s economic convictions are more Germanic than Mediterranean. He was an EU commissioner between 1995 and 2005, holding the competition and internal market posts. Two years ago he wrote a plan to recast the single market for EU Commission chief José Manuel Barroso.

Old Brussels hands say shades of Monti’s work in the Berlaymont are evident in his enthusiasm for politically-tricky structural reforms that Berlusconi shirked for years. With a huge debt mountain to refinance and more than two million workers unemployed, Italy has no choice but to modernise its economy. That, however, is an arduous task.

The big question now is for how long Monti can maintain momentum. Public support in Italy for his efforts is considered broad but no-one knows how deep it really runs.

Although the Roman political establishment is content to let him do the dirty work for the moment, public frustration is bound to kick in down the line.

Whenever an election is called, the question will arise as to whether Italians want him to continue.

This may well depend on the success or otherwise of his campaign to keep Italy afloat. That is a long-term game, however. Survival after a few months won’t mean Italy has beaten the crisis.

Equally, the political response at the level of EU leaders is crucial. This explains Monti’s clamour for a bigger firewall and eurobonds, all the more important given the uncertainty over the fate of Greece.