Prime Minister Mario Monti said his government is trying to “kick start” an economic overhaul in Italy that can’t be completed during his stint in office and declined to rule out a return to politics after his term ends.
Monti is trying to convince Italians that by paying taxes, encouraging meritocracy, and spurring competition the country can boost an anemic growth rate and help bring down the euro-region’s second-biggest debt.
“We will not complete a generational change -- that is, a change which normally requires a generation -- in 12 or 15 months,” Monti said in an interview yesterday at the premier’s 16th-century residence in central Rome. “But it’s important to kick-start it.”
Monti, a former European Union commissioner who took office Nov. 16 amid surging bond yields, has overhauled the pension system and pushed through 20 billion euros ($27 billion) in tax hikes and spending cuts as well as measures to deregulate services and cut red tape. His efforts, bolstered by European Central Bank lending to banks, have led Italy’s 10-year borrowing costs to plunge more than two percentage points from a euro-era high 7.26 percent on Nov. 25.
The premier, whose approval rating rose to 59 percent in an IPR Marketing poll released Feb. 28, has repeatedly said he’ll leave politics after his term ends. Politicians including Pier Ferdinando Casini of the Union of Centrists have said Monti could be offered a second term after next year’s elections.
“If I do with my colleagues in government our job very well, I don’t think it is very likely that I will be asked” to serve another term, he said.
The government, which aims to erase the deficit in 2013, may soon reap benefits from its prudent planning, Monti said. Because his budget was based on estimated borrowing costs of about 7 percent, Italy will be rewarded with “a decline on the expenditure side in terms of interest rate spending” if yields stay at current levels, he said.
The yield on Italy’s 10-year bond fell 2 basis points to a six-month low of 5.16 percent at 9:03 a.m. in Rome, lowering the difference with similar maturity German debt to 335 basis points. That’s down from a euro-era record of 575 basis points on Nov. 9.
“I don’t think it is likely” that yield spreads will widen again, Monti said. “The unpredictability of spreads is not negligible. But we see now in the case of Italy a steady, although gradual decline in the last several weeks. I don’t see honestly any reasons why this course should change.”
Monti’s government of non-politicians, seeking to overhaul the economy before the legislature’s term ends in spring 2013, depends for support on the parties in Parliament, including his predecessor Silvio Berlusconi’s People of Liberty party. Monti, an economist and former professor, said the parties are helping his Cabinet forge a “new approach to public decision making.”
“Italian citizens are perceiving this,” he said, sitting under a chandelier in the Chigi Palace and flanked by two 17th-century globes. The world sees “Italy is shifting gear toward a somewhat less Byzantine and un-transparent way of decision making,” said Monti, 68.
Italy’s 1.9 trillion-euro public debt amounts to 119 percent of gross domestic product, the second-biggest in the euro region after Greece. Monti has said that Italy can only lower that debt burden by spurring the country’s stagnant growth rate, which has averaged 0.4 percent in the decade through 2010, compared with a euro-region average of 1.2 percent.
The premier said he was also confident that talks with unions and employers over overhauling Italy’s rigid labor markets, including rules making it difficult to fire workers, will yield an agreement. The issue has befuddled past premiers who attempted similar changes, such as Berlusconi in 2002, and led to assassinations of economists in 1999 and 2002.
Monti said it’s different now, and the time may now be ripe to increase labor mobility, productivity and overhaul welfare. “I’m confident that this decisive step of modernization of the Italian economy is by now understood by public opinion and by the unions,” the premier said.