George M. Mangion¸ PKF Malta. April 2012
With most Italians enjoying the Pasqua spring holiday¸ they can be excused for forgetting that the survival of the euro very much hinges on the success of Italy’s technocrats’ attempts to rein in the gargantuan deficit. Thus many analysts concur that Italy’s survival is vital if the eurozone is to avoid catastrophe.
While much fuss has been made about the fragile survival of the twice-bailed-out Greek economy¸ it fades into insignificance compared to Italy’s massive financial woes. Everyone is blaming the easygoing style of Berlusconi’s administration¸ which promised tough labour reforms but in the end succumbed to union pressure. Now Signor Monti¸ the new un-elected technocrat acting as interim prime minister¸ looks as if he is firmly in the driver’s seat in Rome¸ tasked with steering Italy away from the precipice of insolvency and protecting the eurozone from a fatal blow.
The omens bode well for him. Let’s face it¸ Monti has no political ambition to be elected prime minister¸ come the next election and¸ as a professor of economics¸ he will gladly return to lecturing in Milan when his job is done. It is no secret that in the bickering Italian Parliament there is a strong feeling that if anyone can pull it off¸ he can. As a former EU competition commissioner¸ he replaced Silvio Berlusconi as the time for palliatives gave way to a need for serious surgery. He efficiently gathered a team of un-elected technocrats much like the mythical army of 300 Spartan warriors in a noble and gallant attempt to slay the Medusa that is Italy’s debt mountain of €1.9 trillion. Will Monti survive the ordeal? There is no consolation prize if he fails to prevent the European sovereign debt crisis from engulfing the eurozone’s third biggest economy.
To his credit¸ Monti has made quick advances in diplomatic circles – having travelled far and wide to explain his plan and request assistance from France¸ Germany¸ Canada and the USA. He has gained confidence in his political discussions and is now blaming the past demeanours of the Commission which¸ in his opinion¸ has led to the eurozone crisis. Put simply¸ he has heaped blame on Germany and France for the crisis¸ saying they had set a poor example early in the bloc’s existence by flouting fiscal rules and exceeding deficit limits in 2003. There were no fines or other punishments for the two stalwarts¸ only the rules were temporarily relaxed.
However¸ crying over spilt milk is no excuse for the fact that there is no alternative to drinking from the poisoned chalice. It is not an easy page in Italy’s economic record when one reads that the latest 10-year bond yield is to close at a record high. This pushes sky-high the cost of meeting bond repayments. Global investors are exasperated with the two-year debt crisis¸ which started with the Greek insolvency and was followed by other laggards such as Ireland and Portugal. More bad news is hitting Italy¸ which is coming under pressure as is reflected in the high yield on ten-year government bonds.
Financial analysts argue that¸ following the end of the Berlusconi era¸ investors fear a spillover