Wednesday, November 02, 2011

“Euro” or “Ero”

As always, Giannelli is sharp and elegant and this time prescient. A few months ago, the Corriere della Sera cartoonist drew a skeletal version of Leonardo’s human figure on the one euro piece with the caption “ero” meaning “I was” – instead of “euro”. Giannelli’s day job used to be at Italy’s oldest bank, the Monte de Paschi di Siena so his insights into the financial crisis are very much to the mark.

We haven’t quite reached the point that Italy will have to leave the euro but with every day that passes, the possibility becomes less fantastical. That the situation is serious in not in doubt; this morning there was a show of unity from all the independent and centre-left papers calling for Berlusconi to resign. Even the family papers called for action with the oversize court jester, Giuliano Ferrara headlining his editorial in Il Foglio “Cavaliere, do something!”

Yesterday in the middle of the All Saints holiday, Giorgio Napolitano published a letter calling on the government to act. This is the closest a president can get to removing the prime minister. He appoints the prime minister but has no explicit power to sack him; Italy’s president is a largely symbolic figure but he does have some residual powers which come into play when all else fails… like now. Napolitano is pushing the bounds of presidential propriety but as one of the few institutional figures with consistently high approval ratings, Napolitano has obviously felt that he has to act if the government won’t. He is already consulting with opposition leaders as if there was a government crisis. But he can do no more than encourage even if he is backed up by most Italians.

Employers, the church, trades unions and not surprisingly, the opposition all want to see Berlusconi go; his approval ratings hover between a fifth and a quarter. Abroad, his fellow heads of government have gone as far (or further) than protocol allows and first Trichet and now Draghi have made the ECB’s position clear. Van Rompuy and Barroso have made their position explicit as well.

But Berlusconi supporters reacted on Monday to suggestions he should step down by saying that it was the Italian people who choose the prime minister, not the German or French governments. Up to a point… the British changed their leader in May 1940 without elections under pressure from Germany and France, there is no reason why Italy should not do the same today under their this time benign pressure and mutual self-interest. An economic Churchill figure wouldn’t be a bad idea.

Berlusconi, though, shows no sign of being prepared to step down. Minister of Labour, Maurizio Sacconi tried to raise tension by suggesting that there will be terrorist violence to stop liberalisation of job security laws. No doubt there will be more attempts at black bloc violence and it is just possible that some unrepentant individual exiles from the ‘70s might try something but there is no violent subculture ready to sprout into terrorism.

The Minister for Programme Implementation, Rotondi made a not-so-veiled threat to possible wavering support among backbenchers when he said “everyone in the PdL is in Parliament because of Berlusconi – they know that if they don’t vote for him, they will not be re-elected”.

Tomorrow the G20 meets in Cannes and the EU summit follows. Greece’s vote of confidence will create some flutters in the euro but the main problem is now Italy and intrinsic to Italy is Berlusconi.

There are two possible developments. The most direct and constructive is that Berlusconi gets the message and resigns when he gets back from Cannes “for the good of the country”, Monti takes over with an interim government going from Di Pietro on the left to Fini on the right taking in all of the PD and the PdL less Berlusconi diehards.

On that side there is general agreement that there should be a wealth tax and real pension reform, not just old age pensions but those available to anyone who has more than a certain number of year of contributions. Rhetorical and divisive measures like changing the Workers’ Statute to allow easy firing should be dropped. It is an inflammatory measure and irrelevant as companies in difficulty can already lay off workers. Monies raised should be spent on growth promotion measures to raise the GDP and lower the percentage debt.

At the opposite extreme is that the government passes a decree law with a few of the less crucial measures requested by Europe and offered in Berlusconi’s letter last week. It is pushed through with votes of confidence but neither markets nor other international organisations take it seriously enough to reduce the spread between German and Italian bonds; at the same time Greece goes into full default and Italy is next in line. Followed by more partial measures too little, too late with a collapse of government and Italian finance some time in the Spring.

The middle line is that Berlusconi holds on till January and then goes for Spring elections but a lot can happen over the next two months.

At the moment, I tend to the pessimistic option; this afternoon there are more discussions on what sort of measures to take – the government and PdL have been talking about these since August and however serious the crisis seems to be, there always seems to be time to talk and procrastinate. Berlusconi is meeting with party leaders in the afternoon and the cabinet this evening. The measures should be included in a bill which is already before Parliament.

The measures might include yet another tax amnesty (Tremonti is very much against it), sale of public property (but it is not clear if they know how much there is and what price to put on it) and above all, little or nothing for growth.

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