Investors in Italy can look beyond Monti

It will be quite a responsibility to follow an acknowledged saviour, a man so trusted by international lenders that most of them not-so-secretly hope he will still be prime minister after elections next spring. Nor will the responsibility end there. Any successor may well hold in his hands the future of the euro. So no pressure then.

The country in question is Italy, the eurozone’s largest sovereign debtor, its third-largest economy and the one with the most longstanding, most deep-seated ailments. The man likely to succeed the esteemed Mario Monti is not Silvio Berlusconi, although he has announced yet another “comeback”, claiming he is being asked by many people “to save Italy”, just a year after Mr Monti was appointed prime minister to save it from him. Instead the man to watch, and think about, is a former communist, Pier Luigi Bersani.

Mr Berlusconi will relish running against Mr Bersani more than he would have relished competing against Matteo Renzi, the man Mr Bersani beat in last Sunday’s primaries to become his centre-left Democratic party’s candidate. Mr Renzi, the 37-year-old mayor of Florence, would have personified change, in a centrist, Tony Blair sort of way. He would also have rivalled Mr Berlusconi in his optimism and telegenic skills. Mr Bersani is a duller, older man about whom Mr Berlusconi can readily use his favourite insult: communist.

Yet the truth is that Mr Bersani is as far from being a communist as Mr Berlusconi is from being a model of rectitude. And while Mr Berlusconi’s party, currently called “People of Liberty”, is in disarray, Mr Bersani’s Democratic party has been strengthened by a civilised primary election campaign, and energised by Mr Renzi’s strong, but not divisive showing. Opinion polls say that if the elections were held now, Mr Bersani would be the clear winner.

The question for investors is whether to worry about that. Plenty of people, especially in business, still think that Mr Monti will somehow be kept in office in order to reassure bond markets and Angela Merkel, the German chancellor. But while that outcome may sound seductively simple to some, it would only be possible if the spring elections were inconclusive. That is not the result investors should hope for.

The outcome Italy needs is one that gives a new government the chance of surviving for all or most of its five-year term, enabling it to implement profound reforms. Italy’s problems are not matters of short-term management of government budgets, which is what Mr Monti has mainly been concerned with during his year in office, nor really a question of the public debt, even though it totals 120 per cent of gross domestic product.

The real problem is a chronic lack of economic growth during the past 20 years, which has prevented that debt burden from being reduced.

To deal with that requires a government capable of removing the country’s many self-imposed obstacles to economic growth, which in turn requires broad support and political durability. Such a result can really only come with a victory for Mr Bersani’s Democratic party, and thus – for all his virtues – with the retirement of Mr Monti as prime minister.

In the primaries, Mr Bersani made an ally of a small party to his left and cosied up to the big trade union federations. Now he needs to take a leaf out of American presidential candidates’ books and start tacking to the centre, both to win votes directly and to gain partners for a potential coalition.

A clear victory for Mr Bersani is a necessary prerequisite for reform. But the question investors and anyone concerned about the prospects for Italy and the euro must ask is whether it will be sufficient. The answer to that depends on whether Mr Bersani can show that he really understands Italy’s ailments.

His record is mildly promising in that regard. As minister for economic development in Romano Prodi’s weak centre-left government from 2006-08 he attempted to introduce just the type of liberalisation programme that is now needed on a much larger scale.

To achieve such a programme he will have to kill a lot of leftwing sacred cows. Italy’s 20-year sickness has been assisted by the left’s destruction of meritocracy in universities and the public sector, and by its refusal so far to contemplate a Scandinavian-style labour-market reform that weakens old job protections in return for better welfare support. Above all, the sickness has been assisted by the Italian left’s deep suspicion of capitalism, embodied recently by its demonisation of Sergio Marchionne, the Canadian-Italian boss of Fiat.

Changing that will be the tallest of orders for Mr Bersani. But without a strong government led by someone like him, it would be virtually impossible.

The writer is co-author of ‘Girlfriend in a Coma’, a documentary film about Italy