Monti’s Mountains

Friday saw the long awaited and much leaked liberalisation decree. It is supposed to be the first step in the Crescitalia (“Grow Italy”) process that prime minister Mario Monti promised would follow his Salva Italia (“Save Italy”) austerity measures. He reckons that there are three obstacles to Italian economic growth: insufficient market competition, inadequate infrastructure and excessive bureaucracy. The decree was supposed to address the first two problems.

Probably the two most important elements, in my view, are the proposal to have a fast track court to deal with business disagreements and the possibility for under 35s to set up a business for €1. The glacial time scale for most Italian civil cases means that even if you win, there’s a good chance that your business will have closed in the meantime. The delay means that any damages will be paid heaven knows when which encourages bad practices. Anything that accelerates resolution can only encourage businesses to invest and act. This new measure means avoiding a wholescale reform of the justice system which would be neverending, hence the partial solution. Before having a disagreement to take to court, though, you have to actually have a business; if the €1 deal really works, it will revolutionise Italian practice; Italy will not become Hong Kong or Singapore overnight but it might at least get closer to some other Europeans.

Then there were the measures which have generated much heat both before and after they were passed. By their nature, taxi drivers are very visible and they work in cities which is where the media live so their protests get a lot of coverage. If the decree is confirmed, they will come under a new national transport authority which they are strongly against as it would cut their direct links with mayors and city councils. But even if the authority is set up, another toothless watchdog is unlikely to regulate Italy’s transport – the other authorities have a mostly ineffectual role. In any case, it is not by having another thousand cabs in Rome that Italy’s economy will magically become competitive.

Nor will having estimates from lawyers, notaries and accountants, more of them and no minimum fees, though of course the changes will help and establish the idea that the guilds and closed shops have lost their privileges. The message is more important than the substance. Ditto for chemists where there should be one for every 3,000 inhabitants.

More important for our collective pockets would be for petrol stations to buy their fuel from any distributor rather than be obliged to have one brand. As important will be breaking the monopoly of gas sale and distribution.

This week the minister of labour, Elsa Fornero, has started negotiations with employers and unions to produce a new agreement on the labour market. She has promised to conclude in a month.

The markets seem to approve of the measures and the difference between German and Italian 10 year bonds is down to around 400 points from a high of 550 (but a year ago it was 150). Even with yesterday’s report from the IMF warning that the world economy is in a “danger zone”, Milan closed a touch up and the spread did not increase.

The problem is in the future and whether Monti overcome the obstacles. These are the questions I have been asked over the last week and here are some tentative answers.
Challenges for Monti. Assuming that the measures proposed by Monti are the right ones to solve Italy’s problems and contribute to the solution of the European crisis, his main obstacles are:

• Parliamentary opposition. The decree has to be converted into law within 60 days. It is still not clear whether there will be a full debate and unlimited possibilities of amendment or if there will be a vote of confidence. Either way, despite much grumbling from the centre right and some from the centre-left, neither dare pull the house down because whoever does will be blamed for the catastrophe that follows. So it will pass, probably modified but not beyond recognition. Today there will be a motion approving the government’s overall action, a sort of supplementary vote of confidence which underlines the parties’ support.

• Social opposition and possible unrest. Role of unions and other pressure groups. Sicily was in revolt last week (the “pitchfork movement”), lorry drivers blocked motorways today and taxidrivers have been protesting for a week. They are minority movements even within the drivers associations and are very unpopular as there has been a run on both fuel and fresh produce. Paradoxically, the protests might actually increase the government’s popularity especially as the Minister of the Interior has ordered the dismantling of the roadblocks and the police are carrying it our effectively.

• Implementation. Ministries. There is perceptive and apposite remark of Bismarck’s à propos laws and implementation: “With bad laws and good civil servants, one can still govern, with bad civil servants the best laws cannot help” . This is the biggest obstacle because it is almost invisibile and will require all Monti’s skill and good will to overcome.

• Finally there are the international obstacles. None of these reforms can function without at least the cooperation and in practice the full scale support from European and international institutions: ECB, Commission, IMF, Germany. Monti needs this to implement the reforms but also to maintain the support of the majority of Italians and to keep anti-German and anti-European resentment under control. Once again, he is likely to make it, if only because it is in everyone’s interest despite chancellor Merkel hesitance. The problem might be that the pace is too slow both for the markets and Italian public opinion. But Monti has personal good credit in the European and international institutions so the prospects are good.

Does all this mean a major change in Italian society? Of course it does. The economic boom of the 1950s changed the whole of Italy radically – these changes will do the same and we’re still at the beginning. It will be a long and hard climb.