Monti, Tremonti and the Monte.

In Puccini’s La Bohème, the best aria for the philosopher, Colline is his farewell to his old coat, “vecchia zimarra”. He will stay below (and freeze) while the coat will climb “the sacred mountain”, the pawnshop, the sacro monte, or monte di pietà.

The oldest bank in the world, the once illustrious Monte de’ Paschi di Siena (MPS) began in 1472 as just that, a fund to help the city’s poor get back on their feet. It very soon became a foundation for the city’s wealth and for more than half a millenium the Monte has shared Siena’s joys and woes.

The Monte scandals now look like overwhelming the Italian election campaign and put Bersani and the Democratic Party’s victory at risk. They are also undermining Italian banks’ so far almost unsullied reputation for reliability.

The MPS is facing two major accusations both in the media and in the last few days also from prosecutors. The first is to have bought the Banca Antonveneta from the Banco Santander in 2007 at a grossly inflated price. Santander had bought the smaller Italian bank two months earlier for €6.6bn and sold it for €9bn, possibly more. There is a strong suspicion that a good part of the extra cost went in kickbacks.

The second problem is that in order to cover the cost of the operation, MPS went into high risk trading and filled its portfolio with toxic assets. These actions may or not be criminal but now a Roman prosecutor is investigating allegations that the bank illegally adjusted interest rates. One whistleblower has told investigators that there was a group of senior executives known as the “5% gang” because of the rake-off they took on the risky transactions.

There are now four prosecution offices looking into MPS, Trani, Rome, Siena and Milan with some high profile witnesses called. This week saw Ettore Gotti Tedeschi being questioned in Siena. Gotti Tedeschi was the president of the Vatican bank, the IOR until being forced to leave last year after allegations that the IOR was contravening European banking regulations. He was also Santander’s representative in Italy. After him was Gabriello Mancini, the president of the MPS Foundation, the actual owner of the bank.

President Napolitano has played fireman twice over the last couple of days, first with a long interview with the editor of the financial paper Sole-24 Ore and then in a ceremony with the Journalists’ Association. He wants to reassure the world and markets that Italian banking is sound and warn the media off from inflating the case. But it’s not an easy job.

The bank itself is in trouble so much so that it has been offered a government loan of almost €4 bn. This will have to be repaid with market interest rates and if it is not, all or part of MPS will be nationalised. The bank’s woes are a serious blow to the city where MPS had acted as a generous milch cow for decades. There wasn’t a social or sporting association or a contrada (the city’s 17 fundamental communities who compete in the twice yearly horse race but which focus the city for the whole year) which had not benefitted from MPS’s largesse. All that has stopped.

If the bank is rotten even partially, then the city’s political institutions cannot escape some taint. Like any public or semi-public institution in Italy, banks have a political colour. Siena has always been a city of the left, Communist and Socialist in the past, Democratic Party (PD) today. Not surprisingly in the middle of an election campaign, that whiff of corruption wafts way beyond the confines of Siena and has been used to hit Bersani and the PD.
For Italy’s banking system in general, if MPS is found to be full of toxic assets, there will be questions about other banks in a system where housing bubbles and junk bonds were supposedly non-existent. The Trani magistrates have already widened their investigations to include the Banca Nazionale del Lavoro, BNP, Intesa Sanpaolo, Unicredit and Credem; they are looking into the possibility of fraud and usury. They are also looking into possible crimes committed by the regulatory agencies from the Bank of Italy and the Italian Banking Association (ABI) to the government and to the stock exchange regulator, the Consob. Even if the watchdogs are not guilty of crimes, there are certainly questions and doubts as to their vigilance and competence. Something untoward has been going on for almost six years and none of them picked it up.

Corriere della Sera’s Sergio Rizzo blamed all of them, including governments past and present, Mario Monti as prime minister over the last year, Giulio Tremonti as economics minister from 2008-11 and the regulators. This is why there has been a surprising silence over the whole affair. Tremonti sniped at his old antagonist, Mario Draghi who was Bank of Italy governor when the problem began but he could not cut deeply for fear of counter attacks about his lack of vigilance when he was in government. Berlusconi’s media swiped at the PD but he himself was silent and Bersani threatened that they would “tear apart” anyone who cast aspersions on the party “someone who abolishes the crime of false accounting cannot accuse others”.

For Puccini’s Bohemians, the “sacred mount” was a temporary salvation but there are problems when it is the Mount itself which is in hock and it will take more than a good aria and an old coat to save the MPS.

As in previous election years, the American University of Rome will be hosting a two day conference covering election issues, parties, policies and personalities, with analyses from scholars, journalists and politicians. This year it will be on 8-9 March 2013 originally a month before the likely date of the elections, now two weeks after the 24-25 Feb elections. The keynote speeches will be given by Paul Ginsborg and Gianfranco Pasquino.

Follow me on Twitter: @walstonjames

Monti

Italy’s new prime minister is the antithesis of his predecessor. Not only are there no dirty jokes, orgies and multiple properties vaunted before visiting heads of state, there is almost no spin, no promises and no instant remedies. Mario Monti’s style reflects the other side of Milan and Italy as a whole as does the other Mario – Draghi who took over as head of the European Central Bank a fortnight before Monti became Prime Minister.

And his approval ratings suggest that Italians overwhelming support him. As he was winning his votes of confidence last week, 83.8% approved of him and 78.6% approved of his government compared to 22.4% for Berlusconi and 20.5% for his government at the end of October.

He and his ministers have said almost nothing in the week that they have held office. Most have not opened their mouths in public and the ones that have, said very little. Health minister, Renato Balduzzi appeared on Lilli Gruber’s “Otto e Mezzo”, the quietest and most respectable political talk show very different from the Coliseum act that most of the others put on; he did not say very much about what the Monti government would do. The only person who has been outspoken is the development and integration minister (a new post), Andrea Riccardi who reiterated President Napolitano’s statement that the children of immigrants born and brought up in Italy should have Italian citizenship, a controversial topic for the Northern League and some of the right but not part of the government plan.

For his part Monti is working on the supplementary budget measures that he hopes to pass before Christmas. He will need to do a lot more communicating to get it through parliament and a suffering public. His main fault so far has been to move very slowly and very quietly.

Almost certainly the local property tax on first houses (ICI) abolished by Berlusconi will be reinstated. This will take some of the pressure of city administrations which had to cut services or raise charges. There’s a good chance of a wealth tax although the centre-right has said that they oppose it. According to a Demos survey this week, most Italians expect and accept the property tax, the wealth tax and possibly an increase in income tax as long as they are progressive taxes and as long as they catch tax evaders. There is a problem of course in that “tax evasion” is something that only other do, by definition – if I pay a professional or an artisan in cash, that’s not evasion; it’s only the fat cats that evade… So if Monti really does clamp down on the grey economy, there will certainly be reactions.

He will also have to face the pension issue; the same survey showed that raising the pensionable age is very unpopular but will have to be done sooner or later. The other controversial issue is the reduction of job security, something which the unions and the left have made very clear is unacceptable. But it is an issue which Monti can finesse as employers can already lay off employees if the accounts show that the firm is at risk.
Whatever measures he does propose, they will have to navigate between the shoals of the uneasy coalition of centre-left and centre-right. The parties, especially the old centre-right majority have made it very clear that they could bring down the government whenever they want.

All the talk about a technocratic government being “undemocratic” dissolves when faced with the reality of parliamentary supremacy. It is true that Monti was not elected by the people but it is equally true that their representatives will have to accept whatever measures the government proposes.

This reality even allowed Monti a joke when he said in his speech asking the Chamber for their confidence “I would ask you not to refer to parliamentary democracy and the government’s complete reliance on Parliament with the electrical metaphor of ‘pulling the plug’; it is not clear whether we might be considered an electric razor or an artificial lung”. His government is actually both.

Of course the government is weak and vulnerable to whatever winds are blowing through Montecitorio but its very weakness combined with the storms howling outside Parliament paradoxically give Monti a good chance of surviving the full term simply because no one dares to take the responsibility of bringing him down. Both the big parties are internally divided which will also help Monti.

He started well enough in Brussels but that was predictable and it would have been a disaster if he hadn’t come home with at least the verbal the support of Merkozy. Even without concrete measures from Brussels, Italians are happy to see their Prime Minister be treated as an equal by the leaders of the two other big euro economies. If he can get the supplementary budget measures through before Christmas including at least some of the controversial items like property tax on first houses, wealth tax and some labour flexibility measure, then the rest will be (relatively) easy.