Mario Monti and the limits of Technocratic governments

Back in November, Monti’s popularity was such that he could have imposed to parliament and to the country measures that would have been impossible to even discuss for the previous governments. His power was not due to the usual honeymoon effect, as here there was no election and no love, only fear of national bankruptcy and the general consensus that if there is someone that can save Italy, it is Super Mario.

Eight months later, the day after parliament finally passed the most complicated bill introduced by Monti (which had to be pushed with repeated confidence votes), the Labour bill, things are quite different. It is possible, even if not likely, that Monti will have tried to pressure his European colleagues at the summit currently underway that unless he comes back home with a tangible result from his list of requests, he will resign. It wouldn’t be an empty threat. Monti knows that his power base, the Italian people, has eroded as Italians have seen the famous ‘spread’ return back near the levels last seen during the last days of Berlusconi’s administration. Simply put, Italians agreed to tighten their belts without too much complaint but were expecting in return to be able to return borrowing at European and not South American rates, to see Italy diverge from not only Greece, but also Spain, Portugal, Cyprus.

Unfortunately, this hasn’t happened and there are two main reasons for this, the first endogenous and the other one exogenous, as Monti himself would have said in his Macroeconomics classes. The exogenous variable is the continuation of the European crisis which sees markets continuing to go after the next perceived weak link. When Spain’s banks got bailed out, Italy’s started appearing in the crosshairs.  Monti is quite appropriately trying to address this by persuading Ms.Merkel that the markets need some short term mechanism that automatically speed-limit the borrowing costs of Italy, Spain and the like to deviate too much from Germany’s.  We will know soon if he succeeds. The internal issue is that Monti’s government ended up watering down its initial promises and has had to acquiesce to the political games in an even greater way as ‘normal’ governments, as he has no constituency in parliament of his own. The main example is the Labour bill: nobody likes it because it didn’t really achieve anything. Ms.Fornero had a historical chance of rewriting the book on Italy’s terrible labour laws but only achieved to change a few footnotes.