Technocrats Take Over Italy Helm

Italy has a caretaker government of technocrats led by Mario Monti, a 68 year economics professor. The caretaker government took charge of the Eurozones third largest economy on Wednesday, the 16 th of November. The 68 year old, economics professor, Mario Monti, took on the additional role of running the finance ministry.  Mario Monti also appointed Corrado Passera, head of intesa San Paolo, Italy’s largest retail bank, as head of a “superministry”. “All this will, I trust, translate into a calming of that part of the market difficulty which concerns our country”, said Mr. Monti. Angela Merkel, the German chancellor had a difficult time dealing with Silvio Berlusconi, the departing Italian minister, said she valued Mr Monti highly. Yields on Italy’s 10 year bonds remained above the 7 percent level, despite the fact that the ECB, European Central Bank has been buying the bonds heavily. The premium Rome pays over Berlin to borrow was 528 basis points. However, all other Eurozone bonds saw a sell off. The 17 unelected technocrats of Italy’s new administration are riding a wave of popular support in Italy, while they also carry the hopes of panicking investors and foreign capitals. Technocrat governments are not new in Italy. The last technocrat government was led by Lamberto Dini, who was ushered in from the Bank of Italy after the collapse of Silvio Berlusconi’s first government in 1994. The new cabinet has a lot of experience especially in Academia and the civil service. The youngest in the cabinet is 56 and the oldest is 75. Piero Giarda, professor of economics and former finance ministry undersecretary will play a key role as minister for relations with parliament. Mr. Antonio Catricala, who as cabinet undersecretary will deal with the daily nuts and bolts of running a government, he could act as a bridge to the past because he was particularly close to the former Prime Minister Silvio Berlusconi. An alliance of business groups that includes the influential Confindustria lobby praised the ministers as competent professionals demonstrating the spirit of service. “We launch an appeal to all political forces. It is absolutely essential that, starting from today, markets perceive that the government has a wide, strong and convinced support in parliament,” the alliance said.

The central bank fears weakening incentives for government to implement reforms. Financial crisis are times when the central banks can at least show their fire power. So the question being asked is why the European central bank has remained quiet and modest even in the face of escalating Eurozone financial crisis? This month saw a significant intervention from the ECB in government bond markets which helped to curb the rises in the Italian debt yields. The European Central Bank hasn’t indicated that government bonds purchases could be stepped up. Instead, Mario Draghi, the new ECB president has indicated that the banks actions would be limited and focused on ensuring that interest rate decisions where transmitted via financial markets to the real economy. An alternative would be for the ECB to set limits on the spread between interest rates on German bonds and other government bonds. Doing this would match its objective of ensuring the effective “transmission” of its interest rate decisions. The Eurozones six Triple A rated countries should have greater say in the economic affairs within the single currency and act as its inner core. Alex Stubb said in an interview he did not believe new institutions should be created to give the triple A countries more power. But he said that the European Union rules that allowed “enhanced cooperation” between member states might be needed so they could coordinate economic policies. A country that isn’t triple A rated isn’t going to be the best one to give you advice on your public finances. Mr Sarkozy, the French president, has been the strongest advocate of closer integration among a euro subset, arguing France and Germany should act on their own to set the standard.