Mario Monti, successor to Silvio Berlusconi, is known as "Super Mario" and the "Italian Prussian." Monti acquired these monikers due to his tough stance against American corporate titans during his tenure as EU competition commissioner.

Two weeks ago, "Super Mario" was assigned the extremely difficult role of "chief firefighter" for the deteriorating Italy economy. The markets, as well as Italian MPs, initially welcomed Monti, with the 10-year bond yield cooling down to 7% plus as proof. However, the yield has now resumed its upward trend, sending less optimistic signals to the world.

Dreams are always more wonderful than reality, and perhaps Monti should remind the emotional Italian public of this. The Italian people have invested massive hopes in Monti's ability to reform and revive Italy's rigid economy.

He is certainly trying hard to live up to these high, almost unrealistic expectations. Most of his new government ministers are university professors who are far away from Italy's political scene. There are two sides to this coin: These ministers, coming as they do from outside the world of Italian politics, are untainted by endemic corruption and political scandal and, therefore, are likely to be welcomed by the scandal-weary Italian public. Their theoretical expertise is also a plus. On the other hand, theory is not practice, and, due to their lack of political experience, they may not be politically mature or astute enough to guide Italy through these tough times. This same doubt could, of course, be leveled at Monti himself.

In his first public appearance, Monti stressed his 18-month plan to "provide a respectful and hopeful future for Italian children." Beautiful wish! However, to achieve this, he needs political tactics to go with his undoubted economic expertise. The first test for Monti and his government is to gain parliamentary support, as this is what it means to be a Parliamentary Republic. Berlusconi is a case in point.

Berlusconi has left following pressure from the European Central Bank, leaving "Super Mario" to deal with its tough austerity demand of 58.9 billion euros of savings, or 3.4 percent of the country's GDP.

According to FT.com, one of the major tasks facing EU inspectors in Italy is to accurately assess the country's sellable state property. But more than that, a freeze on public-sector salaries and tax increases, reform of Italy's rigid labor market are also measures which cannot be avoided. In order to cut government expenditure, Monti may have no choice but to eliminate provincial level government.

All these measures, although necessary, are not welcomed by all. All these reforms need both a super strong government and majority support in parliament, both of which will be challenging for "Super Mario" and his new government.

At present, the North League has expressed reservations about supporting "Super Mario" and his new government. The reason for this is that their voters are typically dependant on the pension program, and are also protected by the current labor market system. Despite the fact that Monti currently has the support of Berlusconi's Party of People's Freedom, there is no guarantee that their support will not be withdrawn in future if austerity measures prove unpalatable.

Mario Monti proved to be powerful in the face of giant multinationals like GE, DaimlerChrysler AG and Microsoft. However, he must now deal with a country known for its less-than-puritan work ethic, and a political culture steeped in inefficiency and bureaucracy. His tough task is to revitalize the stagnant Italian economy, which will require time and determination on his part, and a great deal of sacrifice on the part of the Italian public. Only time will tell whether they will respond like the Greeks or the South Koreans.

According to an AP report, Italy has to roll over more than €300 billion of its debts next year alone to cover its due debt. But with the rising yield of government debt, the "rolling over" cost may go beyond its capability. Another assessment is that in order to balance its huge debt, Italy needs a primary surplus of more than 5 percent of GDP just to stop its debt blowing up. The task appears Sisyphean.

Another aspect is the Italian labor market, which is very much a dual track market, creating a dangerous bifurcation between some segments of excessive protection and others of extreme insecurity.

There is some cheer, however. Italy's balance sheet, with a deficit of less than 120% of GDP is still superior to that of Greece. In addition, the private sector is not deeply in debt, which adds some rays of hope for Monti's18-month tenure.

We generally say "Politicians walk on eggs", while "economists walk on theories." So, just how will economist politicians walk on the unstable terrain that is Italian politics? We will just have to wait and see.

The author is a researcher with the Institute of South and Southeast Asian and Oceanian Studies, China Institutes for Contemporary International Relations. His research interests include global economy.

Related

• France, Germany, Italy leaders to meet over debt crisis
• Wall Street plunges on Italy concern
• Eurozone has no plan to rescue Italy
• Monti sworn in as Italian PM
• Mario Monti to form new government

Go to Forum >>0 Comment(s)