Italy's great liberaliser?

An interview with Mario Monti

Jan 17th 2012, 15:54 by J.H. | ROME

ITALY's prime minister, Mario Monti, is due to arrive in London tomorrow on the latest stage of a diplomatic offensive that has once again made his country a leading player in the euro-zone crisis.

Before the next European Union summit, on January 30th, Mr Monti is expected to hold a meeting with the German chancellor, Angela Merkel, France’s president, Nicolas Sarkozy, and Herman Van Rompuy, the head of the European Council. Italy, it seems fair to say, is back at the top table after being quietly shoved off under the leadership of Silvio Berlusconi.

Britain’s refusal to sign up to the proposed fiscal compact between EU member states in December makes David Cameron, the prime minister, a special case. Mr Monti feels it would be unrealistic to expect him to go back on his decision.

But he is anxious to involve the British as much as possible. “The more the UK feels distanced from European construction the less others are able to benefit from the full influence of the many good things that the UK can help us all to achieve, and therefore there are many areas where I think it would be beneficial to have the UK fully at the table,” says the former economics professor in his characteristically unhurried, measured way.

Mr Monti, who served as the EU’s competition commissioner between 1999 and 2004, is that rare thing, an Italian economic liberal. That should help him to build bridges to the isolated Mr Cameron.

On the contentious issue of a financial-transactions tax, however, Mr Monti, once a critic of the idea, now shares Mrs Merkel’s view that it would be desirable if only it could be agreed among all 27 EU member states. Still, given that Mr Cameron has a veto this is unlikely to happen.

Mr Monti's central message, to both Mr Sarkozy and Mrs Merkel, has been that the EU must move beyond enforcing fiscal discipline to stimulate growth, a view repeated by Standard & Poor's as it downgraded nine euro-zone countries, including Italy, on January 13th. That, thinks Mr Monti, means not only finding ways to lower interest rates, but encouraging liberalisation wherever possible.

Mr Monti is not a proponent of harrying Berlin to boost its domestic consumption. But he would very much like to see the Germans do more to liberalise services. He acknowledges that “It is rather unusual for Italy to be at the forefront of pro-market initiatives.” But he plans soon to practise at home what he has been preaching abroad. “I am convinced that it is also in Italy's national interest,” he says.

Within a few days Mr Monti is expected to unveil an extensive package of measures designed to free up markets and increase competition in a country where cosy cartels have long been the norm. Since his government of technocrats, which took office in November 2011, is also trying to force labour-market reform on the trade unions and fiscal compliance on Italy’s legendarily tax-shy self-employed, this might seem a bridge too far.

But the prime minister has at least two advantages: his experience in Brussels grappling with multinationals and national governments, and the fact that his government is not beholden to any one political faction or interest group.

Though unelected, and responsible for an emergency budget in December that inflicted considerable pain on Italians, Mr Monti’s administration remains surprisingly popular. Mr Monti believes that “there was in Italy a hidden demand for a boring government which would try to tell the truth in non-political jargon.”

Some would add that it has also benefited from the sheer terror spread among Italians by the way the euro-zone crisis has engulfed their country. Benchmark sovereign-bond yields that have repeatedly bobbed above 7% and a spread between Italian and German debt that has frequently topped 500 basis points may help explain why they have been so ready to entrust their fate to a government of perceived experts. So far.

The danger now is that the “spread effect” could turn against the prime minister. Many Italians believed that the ditching of Mr Berlusconi would save them from further contagion. The fact that bond yields have not returned to anything close to normal makes some wonder if it was worthwhile.

“Austerity is not enough, even for budgetary discipline, if economic activity does not pick up a decent rate of growth," Mr Monti warns. "A lowering in interest rates does not depend only on Italy's efforts but also, and essentially, on Europe's ability to confront the crisis in a more decisive way." He has told the leaders of the less-indebted euro-zone nations that unless they act soon to bring interest rates down, his government could be replaced by something far harder for them to deal with.

When Mr Monti referred earlier this month to the threat of growing Euroscepticism in Italy, it was widely taken as an allusion to the populist Northern League, Mr Berlusconi's junior coalition partner during his time in office. But, he says, the danger is much broader than that. “What I see now, week after week, in parliament is a widening of the spread of this attitude... The degree of impatience-cum-hostility to the EU, to Germany and to the ECB is mounting.”

http://www.economist.com/blogs/newsbook/2012/01/interview-mario-monti