As fiscal contagion blazes across Europe, democracy has been put on hold in the very places where it was born, Athens and Rome. Replacing Italy’s playboy billionaire prime minister, Silvio Berlusconi, and the scion of Greece’s leading political family, George Papandreou, are two men far removed from the rough and tumble of everyday politics, Mario Monti and Lucas Papademos.
Unelected but with glittering CVs boasting high academic and professional achievements, these technocrats now hold the fate of the euro zone in their hands. Sober, learned, politically impartial and respected in Brussels, with impressive track records in EU-related jobs, Monti and Papademos represent the euro’s last stand. If they fail in the formidable tasks before them, the chances of the euro zone surviving the fiscal storm intact are bleak.
Mario Monti is, in many ways, the anti-Berlusconi. One Italian newspaper likened his succession of Berlusconi to “clean water after you have been drinking too much”. With a reputation for intellectual rigour and diligence, the 68-year-old earned the sobriquet of of ‘Super Mario’ during his tenure as the European Commission’s competition policy chief for boldly taking on the big guns of industry. During his five-year stint there from 1999, Monti blocked the $45-billion merger of Honeywell and General Electric and fined Microsoft euro 497 million in an anti-trust case.
An economist by training, Monti has a sterling academic pedigree, including degrees from Milan’s elite Bocconi University and Yale in the US. He worked as a university professor until 1994, when he took the first of his two EU jobs, as commissioner for internal markets. After leaving the European Commission in 2004, he set up Brussels’ leading economic think tank, Bruegel.
Monti is now in the process of appointing his new cabinet, a difficult task, given the country’s political fragmentation, sharp polarisations and entrenched vested interests. The economist has till 2013 to drag Italy back from the abyss it is staring into. He will need to pass legislation that is bound to be deeply unpopular to calm markets and gain the confidence of bond holders.
His main aim will now be to stabilise the country’s euro 1.9 trillion public debt and ensure Italy access to short-term liquidity.According to private sector economists, Italy will need euro 650 billion to be spared the need to access sovereign debt markets over the next three years, plus a possible additional euro 50 bn to support its shaky banks. Even more challenging are the reforms he needs to initiate to tackle problems of long-term competitiveness and productivity, by ending the stifling role of the state in the economy and undertaking labour market and pension reforms.
There are few guarantees that despite his impressive credentials, Monti will in fact be able to pull of this feat. The same factor that works in his favour, distance from the ‘dirty’ world of Italian politics, can also be a hindrance, since passing unpopular legislation will require strong backing in parliament. More, while Berlusconi might be down, he is certainly not out, having made it clear that he remains hopeful of a comeback.
After a brief initial rally on the news of Monti’s appointment, the markets have also indicated they do not expect any overnight miracle. Italian bond yields surged up over the seven per cent mark again this week, the point at which the debt burden of a country is usually considered unsustainable.
GREECE
Given the size of its economy, the implications of an Italian collapse will be far weightier than a Greek default. However, the immediacy of Greece’s fiscal woes outmatches Italy’s.
Athens’ fast dimming hopes now lie on the venerable shoulders of veteran central banker Lucas Papademos, 64. He is a former vice-president of the European Central Bank, a post he left in 2010 to become advisor to beleaguered Greek PM George Papandreou.
Papademos is cut from similar cloth to Monti’s, with an academic background that includes a BA in Physics, MA in electrical engineering and PhD in economics, all from MIT in the U.S. He has taught at Columbia University, as well as at the University of Athens. Prior to his stint at the ECB, Papademos was a senior economist at the Federal Reserve Bank of Boston and later governor of the Bank of Greece.
An advocate of fiscal discipline, Papademos is known as a strong believer in the benefits of the euro. He has thus far shared the mainstream thinking at the ECB, according to which the bank should not have a large role in European bailouts. His pro-European credentials have caused euro zone partners like Angela Merkel and Nicolas Sarkozy to cheer his appointment. And, he has filled his cabinet with other Europe-friendly faces like Stavros Dimas, a former EC environment chief.
Papademos has only 100 days before elections in February to salvage something from the wreckage of Greek finances. His chief mandate is to implement the Oct 26 bailout package agreed to by European leaders, in return for a new round of stringent austerity measures. This will also involve launching what are bound to be tortuous negotiations with private sector banks that have agreed ‘in principle’ to a 50 per cent writedown on their debt holdings.
Before all else, he must secure the latest tranche of emergency aid worth some euro 8 bn from the EU and IMF, without which Athens will run out of money within weeks.
Papademos’ ability to achieve these Herculean ends is not helped by the incessant bickering between the country’s political parties. Within days of being appointed, his government has already run into trouble, with the leader of the conservative New Democracy Party refusing to sign a letter committing support to the October 26 bailout, a signature Brussels insists on as a condition to releasing any more funds.
For Greece, the immediate prospects of surprise-referenda might have gone, but the ‘papandemonium’ looks set to continue.
