Yet in theory at least, Monti’s job shouldn’t be impossible. While Italy’s national debt is dangerously high, its budget would be in surplus without debt interest payments. Italy’s private sector is not excessively leveraged: private sector debt is just 129 per cent of GDP, against 211 per cent in the UK. The problem is the public debt at 120 per cent of GDP, crippling red tape, corruption, an unreformed public sector and vast unfunded state liabilities.
Fortunately, the Italian state owns plenty of assets, from shares in major companies worth tens of billions to 2,500 tonnes of gold worth €100bn. The shares could be sold at a good price , providing much-needed liquidity. The gold could be used as collateral for the bond markets, allowing Italy to raise €300bn, with the first third of potential bondholder losses in the event of losses insured.
Let us hope that Monti doesn’t go for the lazy option of a one-off wealth tax on private households’ bank accounts and homes. Italians are wealthier per capita than Americans or Germans, but such a move would be bound to be copied elsewhere and would reduce the pressure on politicians to sort out their own affairs – violating private property rights is not the way to go. What is required is a fair and efficient tax system and a massive crackdown on tax evasion.
Wealthy Italy shouldn’t need an IMF bailout, or even the monetisation of its debt by the European Central Bank. It should refuse all outside help and marshal its own resources. But that means painful change, and tackling the tyranny of the status quo, the power of vested interests and the statist/welfarist/corporatist ideology which has proved to be so powerful at halting reforms in Europe and America. Public sector workers will go on strike at any hint of a shake-up. It is hard to see how Monti will smash these obstacles.
He is a distinguished academic – but his decisions while he was a European Commissioner were decidedly mixed. He was right to stop Germany subsidising Landesbanken. But his flagship anti-trust case against Microsoft in the early 2000s did nothing to enhance competition (the internet and innovation from Google and Apple turned out to be much more powerful than anything Brussels could dream up) and helped damage Microsoft without making consumers better off. It will go down in history as a case study in futility. Let us hope he is more focused on what actually matters this time around.
Monti’s task will be to convince the Italian public to change – and the political establishment to allow him to push through austerity and supply-side measures far more radical than anything Silvio Berlusconi was planning. There will be lots written about Monti’s supposedly super-normal qualities over the next few days – but the stark reality is that the odds are massively stacked against him.
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