16 April 2012

Reuters: Italy's Monti loses his shine

Monti says his reforms of pensions, the service sector and the labour market lay the foundations for Italy to emerge from its record as one of the world's most sluggish economies. But he is increasingly isolated in that view, and Italy is at the heart of fears that eurozone debt crisis could worsen.

When Mario Monti became Italian prime minister last November it seemed he could do no wrong. Borrowing costs fell and praise poured in from commentators, international bodies and political leaders on both sides of the Atlantic. Now the former economics professor faces falling approval ratings, criticism of his reforms, rising bond yields and a feeling he may not be able to revolutionise Italy after all.

Monti watered down his original reform proposal to ensure the backing of leftist supporters in parliament, scrapping a plan to allow firms to fire workers for business reasons without any risk of having to reinstate them. The change infuriated Italy's main business lobby, Confindustria, whose president, Emma Marcegaglia, called the revised text "very bad" and said it would do nothing to help firms or jobs. She later said Confindustria would not try to hijack the reform out of "a great sense of responsibility".

To some extent, Monti is suffering from the unrealistic expectations generated by his first weeks in power. Markets and commentators were wooed by his economic competence and decisive action on public finances, while the scandals of his predecessor, Silvio Berlusconi, made him an ideal act to follow. They were happy to overlook that as an unelected technocrat, with broad backing in parliament but no party of his own, lawmakers' support was likely to wane as soon as the risk of a Greek-style debt crisis receded.

Monti has increasingly had to come to terms with political parties and lobbies, slowing his policy drive since he rushed through a €30 billion austerity plan last year that included pension reform. That reform abolished early retirement pensions based on the number of years worked, and sharply raised the retirement age for women. It is seen as Monti's most important achievement by far.

By contrast, his subsequent "Grow Italy" package to deregulate the service sector, and his more recent reform of labour rules, were both the product of lengthy negotiations with parties and pressure groups. They have drawn more scepticism than plaudits. "Apart from pensions, on all the other fronts, from liberalisations to the labour market, everything has remained substantially unchanged", said Fabio Scacciavillani, chief economist of the Oman Investment Fund and formerly at Goldman Sachs and the European Central Bank.

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