Italian Prime Minister Mario Monti’s looming resignation may threaten progress in fighting the three- year debt crisis even as European leaders wrap up the year with newly won breathing room.
Monti, under pressure from euro-area and business leaders to enter the Italian election campaign, plans to quit once parliament passes his budget this week following former Prime Minister Silvio Berlusconi’s withdrawal of support on Dec. 6. The Italian upper house may vote as early as today on the budget, which then passes to the lower house.
The European Union summit last week closed out a year in which policy makers bolstered the 17-nation single currency by setting up fiscal rules for indebted states, a permanent bailout fund, a central-bank bond-buying program and a road map for tighter banking and fiscal union. Work was overshadowed this month when Berlusconi pulled his support and pledged to return to power for the fourth time, only to backtrack as long as Monti forms what he called a “coalition of moderates.”
“None of the likely outcomes will derail last year’s reform process,” Erik Nielsen, London-based chief global economist at UniCredit SpA (UCG), wrote in a note to clients yesterday, referring to the Italian election, which will probably be held in February. “That said, it requires close monitoring.”
The euro last week climbed to the highest level against the U.S. dollar since May and Spanish bonds advanced for a third week in four on optimism that the turmoil is being contained. EU policy makers last week made progress in creating a central bank supervisory body and signed off on the next aid tranche for Greece, where the crisis began in October 2009.
EU leaders will be challenged in 2013 as they try to overcome Franco-German differences on how to forge closer fiscal ties and as an economic downturn complicates efforts to scale back debt while buoying employment.
“We still have a stretch ahead and we’re beginning to sense in Germany that we can’t ignore economic growth and employment in other countries,” German Chancellor Angela Merkel said Dec. 15 in a weekly podcast. “I’m going into the new year optimistically, but also prudently, because we’re seeing here that economic growth is slowing a bit.”
Italy was on the front line of the crisis this year, when yields on its on 10-year bonds exceeded 7 percent in January and climbed again through the summer before sliding to less than 4.5 percent this month under Monti’s premiership. European leaders, some Italian politicians and even Berlusconi have exhorted the prime minister to surrender his independence and declare his candidacy in elections.
Monti won’t be an official candidate in the next election, though he may endorse a party list, Corriere della Sera reported today, citing a meeting between Monti and Italian President Giorgio Napolitano late yesterday. The premier may allow a group to use his name in the election campaign and will outline his intentions in a speech, the newspaper said.
Monti’s 13-month government wins regular praise from the likes of Merkel and Fiat SpA (F) Chief Executive Officer Sergio Marchionne, though the German-backed tax increases and spending cuts that have helped lower Italy’s borrowing costs have soured many voters to the idea of a second term.
“While Monti has received a glowing endorsement from the international community, he’s struggling to convince people on main street,” Nicola Marinelli, who oversees $180 million at Glendevon King Asset Management in London, said in an interview.
Ferrari SpA Chairman Luca Cordero di Montezemolo will hold a convention with the Union of Centrists and the Freedom and Liberty for Italy parties on Dec. 20 to form a pro-Monti coalition to try to entice the premier to join the race.
Polls show Monti, 69 as the country’s most popular politician. And while having a ready-made party would make it easier for the premier, he would still need to win over voters weary from a fourth recession since 2001 and a jobless rate at a 13-year high.
Support for the three-party pro-Monti alliance trails the pro-union Democratic Party under Pier Luigi Bersani, according to a Dec. 12 SWG Institute poll. Monti’s alliance would jump to 15 percent from 9.3 percent were he to run, still half of the Democratic Party’s 31.1 percent. Berlusconi’s People of Liberty had 16.5 percent, SWG showed.
Last week Berlusconi stepped back from his pledge to run again and called on Monti to lead a “coalition of moderates” into the campaign that would include Berlusconi’s PDL and his former coalition ally, the Northern League. Roberto Maroni, leader of the League, rejected the overture, saying he could never ally with “the world champion of tax increases.”
Once Monti resigns, Napolitano will dissolve parliament and must schedule elections within 45 to 70 days. Interior Minister Anna Maria Cancellieri last week said Feb. 17 would be the probable election day.
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