Mario Monti's New Challenge

Wed, 22 Feb 2012

Mario Monti is performing very well in his role of pro-tempore Italian Prime Minister, but he now has to get over the hump of the labour market reform

When in November 2011 Mario Monti took office as the new Prime Minister of Italy, the country was on the brink of collapse, facing the deepest crisis since the end of World War II. Pressed by both the international markets, which were punishing the national bonds, and the European Union led by the austere hand of Angela Merkel's Germany, Italy was on the edge of a financial collapse. In a few weeks, Monti's government elaborated a loaded recovery plan to ensure the country's financial stability and avoid a Greek-like drama that would undermine the euro and the entire process of European integration.

Securing the financial solidity of Italy was not, however, the only goal to be attained by Monti and his ministers. Elements like re-launching growth and competitiveness of the national economy, as well as establishing a new fashion in internal political debate and international diplomatic relations of the country, were, and still are, central in Prime Minister Mario Monti's approach to his short-term mandate. Yet after almost two decades under Berlusconi's rule, the objective of reshaping the entire nation's attitude towards responsibility, meritocracy, open competition, and fiscal sobriety appeared to be purely utopic, even to the most optimistic observers. This did not, however, affect Mario Monti.

The Italian Prime Minister, apart from opting for a very low-profile administration of his public appearances, has launched a two-steps plan to boost the national economy in a context of growing international integration. Italy's growth is still stuck in the 1990s and apparently funded on an industrial model, which has no chance to compete with the world's fastest growing economies. Monti's plan thus rests in providing the Italian economy with new energy to face the current dire straits, including a supposed major reform of the labour market.

The Italian regulations on labour, trade unions, and workers' rights and duties mostly date back to 1970 and are considered to be an obstacle to Italy's growth, albeit representing a European reference in the field of the protection of workers. Labour market reform is seen as key to Italy's efforts to persuade markets it is able to slash its budget deficit and boost the competitiveness of its fragile economy. The Minister of Welfare, Elsa Fornero, has already announced a plan to substantially revise the in-force legislation and introduce new elements of flexibility, accompanied by addressing of safety valves, in particular those pertaining to younger generations. This is critical as youth unemployment is still the main issue to be tackled, currently reaching a rate close to 30%.

Despite not seeing the passage of any concrete element of the foreseen reforms just yet, trade unions and the most extreme left wing of the Italian party system are already on war footing. Unions' leaders are negotiating with Minister Fornero, but this has not stopped them from already threatening a general strike in case of unilateral adoption of the reform, an option that Fornero hasn't excluded. “There is a dialogue but the government will not miss the opportunity; if we do it together, then we’ll be happy but if not, the government will still seek to do it”, Fornero said. The negotiations have not yet involved the Parliament, but once the bill proposal will reach the Italian national assembly, it is expected to generate a tough debate that might jeopardise the large majority supporting Monti's government.

All Italian governments that have tried to introduce flexibility and change the rigid national labour market have faced the fierce opposition of large portions of civil society and, in turn, parliamentary confrontations have always been harsh. This case seems to be no exception. In spite of the large public support for Monti – currently close to 60% - and wide international recognition of the validity of his work, public opinion might rapidly turn against his government if the current asset of labour legislation will be touched. In this case, party leaders might grasp the chance to push for a populist turn to grasp electoral advantages, instead of supporting a reform which may enhance Italy's growth, competitiveness, and employment. Some experienced Italian politicians might even add an extra push and cut the power off to Monti's government, calling for new elections.

Monti and Fornero appear to be completely aware of this risk. Negotiations on the reform with political parties, trade unions, and industrial associations are already taking longer than expected, likely because the Italian government is trying to reach a wide consensus to avoid any risk of rejection of the bill. The moment is delicate and important for Italy and for the whole of Europe. The potential fall of government and the consequent beginning of a new phase of political and economic instability in the country would surely produce a negative response on international markets, and the effects might spread all over Europe and far beyond - something the Italians would certainly like to keep at bay.

by Federico Martire