January 21, 2013 6:24 pm
Italians go to the polls to choose their next prime minister in a little less than five weeks. The election result will reverberate well beyond Italy. The eurozone’s future prosperity will depend on whether its third-largest economy can keep its fiscal house in order and resume growth after a decade of stagnation.
The technocratic government led by Mario Monti as well as decisive action by the European Central Bank have helped restore Rome’s fiscal credibility. Foreign investors have resumed buying Italian paper and yields on 10-year bonds are significantly lower than what they were in November 2011. Yet the economy is stuck in the longest recession since the second world war. Italy’s external competitiveness has not improved since the start of the crisis. Productivity is stagnant and, unlike Spain, Portugal and Ireland, unit labour costs have barely started to fall.
Solving these deep-rooted problems requires a trustworthy leader with a credible economic programme. Neither applies to Silvio Berlusconi, the plutocrat-cum-politician who is planning a comeback after taking his country to the edge of the fiscal precipice. Some elements of his election manifesto, such as steep cuts to government spending that would finance a reduction in business taxes, are sensible in principle. But we have heard it all before. In his nine years in power, Mr Berlusconi, the laughing cavalier, promised much but delivered nothing. Italians should not be beguiled again.
Pier Luigi Bersani, candidate for the centre-left Democrats, and Mario Monti, who is heading a centrist coalition, both have personal credibility. During his time in government, Mr Bersani passed many reforms, including liberalising the legal professions and pharmacy shops. Mr Monti, meanwhile, is trusted both by investors and Italy’s eurozone allies.
However, neither leader has yet to set out a convincing economic vision for the country. The Democrat leader has to prove he will not be taken hostage by the leftwing of his party, which opposes reforms to an inefficient labour market. Mr Monti is right to argue for tax cuts but must spell out where he will find the savings needed to deliver them.
With a strong, export-oriented manufacturing sector and a highly educated labour force, Italy has the potential to return to sustainable growth. Mr Monti and Mr Bersani should use next month’s vote to make the case for a fresh start. This will allow voters to make a real choice about Italy’s future.
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