Is Mario Monti's honeymoon over?


ROME, Italy – Only weeks ago, Mario Monti was Italy’s great hope, a competent technocrat who could soar above the political infighting, and rescue the country from the cruel vigilantism of the bond market.

Italy’s ills had become overbearing. The country was weighed down by massive government debt and a decade of weak economic growth, and embarrassed by Prime Minister Silvio Berlusconi’s bunga bunga sexploits. Change was needed, and fast. President Giorgio Napolitano appointed Monti as Italy’s savior.

Related: A euro zone break-up: Will it wreck the global economy?

A tough and revered former European antitrust czar, Monti was quick off the starting block. He took the oath of office on Nov. 16, two days earlier than originally scheduled. He presented his first austerity measures and called for his government’s first confidence vote — which he won by an overwhelming margin — four days ahead of plan.

The cabinet he named — of diplomats, private sector leaders, academics, and technocrats — was almost universally praised. Monti said Italians would be called on to sacrifice, but he promised the sacrifices would be spread evenly. Pollsters said the man, who had been teaching economics classes as Milan’s Bocconi University just a month ago, saw his approval levels surge to stratospheric levels.

But since then, things haven’t worked out according to plan.

It only took a few days for political bickering to restart:

  • Allies of the ousted Berlusconi threatened to pull their support for Monti’s government if it reinstated the so-called “wealth tax.” Berlusconi, a billionaire, had repealed it while in office.
  • The separatist Northern League, which had been a junior member of Berlusconi’s coalition, threatened to balk at a plan to let the children of immigrants born in Italy to become Italian citizens.
  • Center-left parliamentarians has begged Monti to delay raising the retirement age.
  • And political parties from both sides of the aisle have thrown up roadblocks, systematically stalling or blocking approval of mid-level appointees needed to run the government’s day-to-day operations.

The situation has gotten so bad that the European Union quickly dispatched observers to Rome to monitor it.

“It didn’t take long for Italy to return to being Italy,” Mario Andrea Ventimiglia, a political scientist at the University of Puglia, told GlobalPost. “Monti’s honeymoon seemed to last for about 15 minutes.”

Stefano Quintarelli, a frequent commentator, went further: “Sometimes Italy is like a train left behind on an abandoned track, full of people arguing over who gets the window seat,” he said in an interview.

Related: Should the Fed intervene in the euro zone's debt crisis?

Investors have not been impressed with Italy’s inaction. Though the Italian Stock Exchange surged when Berlusconi resigned, it has lost ground since Monti took office. Yield on Italian bonds has stubbornly remained above the 7-percent threshold that sent Ireland, Portugal and Greece scrambling for help earlier in the year.

Perhaps most significantly, the euro currency lost ground to the dollar and other currencies; falling to its lowest level since September, just 10 days after Monti took office (though it has rallied slightly since then).

One strange development is that the price Italy must pay to refinance its debt in the short run now costs more than in the long run; under normal circumstances it’s exactly the opposite. On Wednesday, bond trading closed with a 7.02 percent yield on 10-year Italian bonds and 7.37 percent on three-year bonds. That means investors are more worried about the country’s economic health over the next three years than over the next 10.

Call it a political penalty. The country is saddled with an aging population, falling productivity, high youth unemployment, record low consumer confidence, eroding competitiveness, a clamp down on corporate credit and massive government debt.

But what really spooks Italy watchers in the near term is the country’s politics.

So far, Monti’s technocratic, all-star cabinet has made it clear that paying down debt and jump-starting economic growth are far and away their main concerns. Even ministries usually far from the economic battlefields are on message: The Ministry of Environment wants to be sure environmental disasters do not stand in the way of industrial production, for example, and the Ministry of Culture wants to promote the country’s artistic and historic riches to attract more tourists while adding a fee to every hotel room stay.

Analysts say the new government might do even better by focusing on political stability — by easing parliamentary infighting, increasing public sector transparency, and passing difficult political reforms. These measures would increase chances that the next elected government would be stable enough to preserve and strengthen the country’s democratic institutions.

Until that happens, Italy will continue being Italy, regardless of whether it’s run by a technocrat.

Sign up for our daily newsletter

Sign up for The Top of the World, delivered to your inbox every weekday morning.