The weekend announcement by Italian Prime Minister Mario Monti that he will resign triggered a rush to sell off Italian debt and stocks, as investors blanched at the uncertainty that will follow the departure of "Super Mario."
Not surprisingly, many investors and Italian business leaders say they would like to see Monti run in the elections that his departure will force, probably in February. That way he could reclaim his job next year, this time with a mandate from Italian voters. Ferrari Chairman Luca Cordero di Montezemolo has even offered to convert his think tank into a political party to support a Monti bid.
We’re fans of Monti, too, and are worried about the fate of the euro area’s largest at-risk economy. Still, he should think long and hard before running.
Monti was appointed prime minister to clean up after the government of Silvio Berlusconi in November 2011. In the 13 months since, an unelected government has curbed the deficit and restored stability and predictability to Italy’s government, almost halving its borrowing costs.
Berlusconi has spent the interim fielding lawsuits that piled up while he enjoyed immunity as prime minister, including one that alleges he paid for sex with an underage Moroccan prostitute, a charge he denies. It was his decision last week to withdraw support from the government that triggered Monti’s resignation announcement. That act of spectacular irresponsibility marked Berlusconi’s return to frontline politics and fed market fright.
Despite all this, Monti is much less popular inside Italy than abroad. He is a notoriously dull political speaker and carries the political burden of unpopular austerity measures. He might struggle to win as much as 10 per cent of the vote, emerging from an election less influential than he went in.
Alternatively, an inconclusive election might cause Italy’s political parties to call on Monti to serve once again as a technocrat prime minister. That isn’t the worst possible outcome from an Italian election, but it isn’t one to root for.
Monti’s unelected government was never designed to remain in office for long. His appointed premiership was an exception to democracy, not a replacement for it. Italians are already growing restless at their lack of a democratic voice in Monti’s austerity policies, which have deepened recession. Berlusconi’s anti-German, anti-austerity rhetoric is designed to tap that frustration, just as the comedian-turned-politician Beppe Grillo already has — witness his 20 per cent polling in regional elections in Sicily.
A better route would be for Monti to run for president, when the incumbent Giorgio Napolitano steps down after the next parliamentary elections, as he has promised to do. Italy’s presidency is not powerful, but it would let Monti influence events from above the fray and appoint a prime minister of his choosing, should no party emerge able to form a government.
In the meantime, Monti should use his outsider status to frame the election as a stark choice for voters. On one side are populists, such as Berlusconi and Grillo, who promise an end to austerity and reforms to the labor market and other changes that Monti began. What Berlusconi and Grillo don’t say — and what should be made clear — is that this backsliding would bring increased risk of default, bailout and more austerity. On the other side are parties that feel the public’s pain, but accept that Italy’s economy must become more competitive and that the deficit must be restrained.
In Oslo this week for the awarding of the Nobel Peace Prize to the EU, Monti already seemed to be playing that framing role, reassuring investors that the end of his government wouldn’t create a political vacuum and that elections would produce a "highly responsible" government. You can bet he didn’t have Berlusconi in mind.
Regrettably, Berlusconi’s move to force early elections has left at least two vital pieces of legislation unratified. The most important is the budget: Monti made its passage a condition for his resignation, and it will probably pass. The second is a new electoral law, designed to fix flaws that have made it hard for Italy to create stable governments. This law is probably dead for now, but Monti, Napolitano and others should continue to push for its passage.
The risk that Italians elect an unstable or populist government is real, but even they might find themselves squeezed into accepting fiscal restraint. The Democrat Party of the Left, which just held impressive leadership primaries with two substantive TV debates, tops opinion polls. The party’s leader, Pier Luigi Bersani, has committed himself to the broad outline of Monti’s policies. He also says there could be a place for Monti in his government, although Monti shouldn’t compete for election himself.
What’s needed now isn’t a heroic bid for votes by Monti, but an honest and clear election campaign.