Italy reforms plus new leader = welcome news
ROME, ITALY (BDCI) – Italian Prime Minister Silvio Berlusconi is set to resign this weekend, and former European Commissioner Mario Monti is expected to succeed Berlusconi and take over as the head of a broadly-based national unity government.
Mario Monti is a well respected economist and tough negotiator with a record of taking on powerful corporate interests in his role as EU Competition Commissioner. Monti is a strong advocate of deep structural reforms to strengthen Italy’s sluggish economy.
These latest changes come after Italy’s debt officially entered the danger zone on November 9, taking a drastic turn for the worst when Italy’s bond yields rocketed above 7%. That’s a crucial threshold, as it marks the same point where Ireland and Portugal passed before their borrowing became so expensive that the European Union had to bail them out.
The major difference is the size of the Italian bail out at stake.
Italy’s debt is larger than the whole economies of Ireland, Portugal, and Greece combined. Italy has about €1.9 trillion, or $2.6 trillion, in debt, and must roll over more than €300 billion of its debts next year alone.
In order to control its dangerous levels of debt, Italy assembled a package of reforms for approval today, Friday. The package offered came with the approval of the financial markets around the world as they rallied in a show of relief.
The austerity measures cleared the Italian Senate by a vote of 156-12. The lower chamber of Parliament will vote Saturday, and Prime Minister Silvio Berlusconi has said he will step down once the reforms are passed.
The reform measures by themselves are not enough to revive the dormant Italian economy but will provide stimulus via incentives at different levels of its economy.
One incentive will prompt companies to hire young workers in a country where the unemployment rate for people ages 15 to 24 hovers around 25 percent. Unemployment overall is closer to 8 percent. Another measure raises the retirement age to 67 but is not effective until 2026. Some reforms call for a sale of state property and privatizing of some government services, but the package contains no painful labor reforms.
The markets have clearly spoken in favor of the Monti government, and many politicians have appeared to support it as well.
“Our warmest and most cordial welcome,” Senate President Renato Schifani told Monti after the unexpected proclamation of Monti as senator-for-life.
“The first thing he can bring to Italy at this juncture is his deep understanding of both the economic dynamics and political dynamics in Europe,” said Thomas Klau, head of the European Council of Foreign Relations. “His intellectual leadership and authority are recognized across Europe”, a contrast to Berlusconi, he added.
A Cabinet meeting has been scheduled immediately after the vote in the lower house Saturday, suggesting Berlusconi might tender his resignation then.
By Jandra Bell
Source: The Economist, CNN
Image courtesy of CNN
11 November 2011
4:30 p.m. P.S.T.