Italian cabinet good for economy

2011-11-17 11:55

Milan - Italian Prime Minister Mario Monti's new technocratic government has a "unique opportunity" to reform a sluggish economy and pull the country back from the brink, but faces major political risks.

"This is a unique opportunity for Italy to enact reforms it has not carried out in recent years," said UniCredit Bank economist Marco Valli.

Gianluca Spina, director of the MIP business school in Milan, agreed, saying: "It's on the right track. These are very competent people."

For pension reform - one of the most sensitive items on Monti's to-do list - the new Social Affairs Minister, Elsa Fornero, is a leading expert.

Fornero can be expected to put in place "incisive reform, not a walk in the park", said Valli, pointing out that pension reform had long been blocked by the Northern League in Silvio Berlusconi's outgoing government.

Another appointment welcomed by analysts was that of Corrado Passera, the head of Italy's biggest retail bank, Intesa Sanpaolo, who will head up a new super ministry for economic development, infrastructure and transport.

Passera will have the task of boosting Italy's anaemic growth rate.

The banker "knows the financial markets very well", said Spina, following a wave of market panic that has pushed up Italian borrowing costs to alarming new levels and brought the country to the brink of a financial disaster.

The appointment of Antonio Catricala, currently head of the Italian competition authority, as secretary of state to the prime minister - effectively Monti's right-hand man - has also been approved.

"But the issue is not whether these people are good but whether they will have the support from parliament," said Spina, after Monti warned that Italians face "sacrifices" ahead and the EU asked for more budget austerity.

After trying to include squabbling political representatives in his cabinet to guarantee parliamentary support, Monti said he had been forced to give up.

"During my consultations I reached the conclusion that the non-inclusion of politicians in my government will actually help it," he said.

Monti has said he wants the government to stay in power until the end of the current legislature in 2013 and said this would guarantee its "ability to act incisively" and to "explain to citizens and to parliament the meaning" of reforms.

Spina said, however, that Monti would only survive if he carried out reforms that are equally disliked by the right and the left in "a balancing act".

"If he imposes a tax on large assets, which is opposed by the right, he will also have to adopt austerity measures or a reform of pensions that the left would not want," Spina said.

The danger is that parties could decide to "pull the plug" on the government - a term reportedly used by Silvio Berlusconi - if initial reforms passed by Monti fail to calm the markets.

"It is the great risk to avoid - thinking that we are out of an emergency once a small portion of the reforms are enacted," Valli said.

The Monti government also has a problem with "popular support", Spina said.

While there has been support in early opinion polls, detractors like the Northern League party have accused the government of not having democratic support.

The solution, Spina said, would be for the government to enact reforms to "reduce dramatically the privileges of the political class".

The danger, warned sociologist Giuseppe De Rita, is that "the street could be stirred up" and facilitate the emergence of a populist firebrand.