Italy’s Huge Public Debt Is Not The Only Problem – Prime Minister Monti Has To Deal With A Weak Economy, Rising Poverty, Organized Crime And A Possible Regional Default In Sicily
By Paolo von Schirach
July 17, 2012
WASHINGTON – Italian Prime Minister Mario Monti is trying to convince bond markets that Italy’s finances after all are stable. But while the fiscal outlook has not deteriorated, nobody believes that Italy is out of the woods. Indeed, it is difficult to believe that a weak and non competitive economy with an aging population will be able to generate the surplus necessary to actually reduce total debt, now exceeding 120% of GDP.
Uncertain political future
Add to this widespread concern for the country’s political vacuum. Monti is not a political leader. He has been president of Bocconi, a private university. He did not run for office. In November 2011 Monti was appointed Prime Minister by Giorgio Napolitano, the president of the Republic, in an act of desperation at a time of financial chaos. In order to get parliamentary support from the established parties for this non political executive, it was agreed that Monti and his cabinet of technocrats like himself would put together an emergency fiscal package, enact a few spending reforms, and then leave office after new elections due in 2013.
But now, it is unclear whether Monti wants to stay on or not. Not clear who supports him and who does not. In the meantime, discredited and now aging (75) former Prime Minister Silvio Berlusconi is considering re-entering active politics, not exactly welcome news, given the national and international bad reputation he enjoys.
As for the other political parties of the left and the center, hard to believe that after next year’s elections there will be a solid majority with a clear mandate for reforms aimed at modernizing the country. In the meantime, Italy’s economy ground to a halt. Recent data point to an increase in the number of families with income below the poverty line, with most of them living in the traditionally poorer south; this way adding misery to misery.
Negotiations with the Mafia?
And now, just to spice things up, there are revelations of past and recent “negotiations” between the Italian State and the Mafia, a large criminal organization that originated in Sicily but is now well established nationwide. Negotiations with the Mafia about what? Power sharing?
Sicily near collapse
Speaking of Sicily, it would appear that the Region (which enjoys a high degree of autonomy from the central government) is close to default. And if you are looking for causes, you may want to start with the numbers of civil servants employed by the Regional Government. According to the Milan daily Il Corriere della Sera, (July 5, 2012), senior managers in Sicily exceed the number of those who work for the British Prime Minister, the small difference being that David Cameron runs an entire country, not a Region. The total number of regional civil servants in Sicily is 5 times those employed by Lombardy, a Northern (and far more productive) Region with double the number of inhabitants.
Who wants to be Prime Minister?
The closely watched large interest rate spread between Italian and German 10 year bonds (close to 5%) is a major headache for Monti and for Italy’s current and future borrowing needs. Lump together the insoluble debt problem, the chronically anemic economy, organized crime enveloping the country, plus corrupt regions like Sicily possibly falling off the cliff and you wonder why anybody would want to be Italy’s Prime Minister, let alone be able to do a good job while in office.Print This Post