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November 10, 2011

Greece and Italy Seek a Solution From Technocrats

By RACHEL DONADIO

ROME Under the white-hot pressure of the bond markets and the glare of European leaders, both Greece and Italy snapped into action on Thursday, looking to technocratic leaders to pull them back from the brink of chaos. Greece named Lucas Papademos, a former vice president of the European Central Bank, interim prime minister of a unity government charged with preventing the country from default. In Italy, momentum was building behind Mario Monti, a former European commissioner, to replace the once-invincible Prime Minister Silvio Berlusconi as early as Monday. The question now, in both Italy and Greece, is whether the technocrats can succeed where elected leaders failed whether pressure from the European Union backed by the whip of the financial markets will be enough to dislodge the entrenched cultures of political patronage that experts largely blame for the slow growth and financial crises that plague both countries. Some said there was cause for optimism. First, the mere fact that they have been asked in such difficult circumstances means that they have a mandate, said Iain Begg, an expert on the European monetary union at the London School of Economics. Granted, its not a democratic one, but it flows from disaffection with the bickering political class. The conventional wisdom from European Union leaders in Brussels has been that greater political consensus in Greece and a change of leadership in Italy could help restore market confidence in the euro. But with investors increasingly viewing European sovereign debt as a toxic asset, it seems doubtful that the markets will truly calm down until both Italy and Greece do more than apply fiscal bandages and until the European Union can put more firepower in its bailout mechanisms. On the surface, Greece and Italy seem remarkably alike. Both countries have entrenched patronage networks that predate the European Union by centuries and suffocating regulations and work rules. And both Mr. Papademos, 64, and Mr. Monti, 68, the president of Bocconi University in
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Greece and Italy Seek a Solution From Technocrats - NYTimes.com

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Milan, have close ties to European Union officials, who are taking a strong hand in managing the affairs of both countries because the fate of the euro hangs in the balance. Both face daunting changes. In Italy, a new government will be asked to carry out labor and tax reforms and other growth-enhancing measures. It will also have to write a new electoral law. In Greece, the government must push through unpopular wage cuts and public sector layoffs in exchange for more foreign aid, and then try to make more structural changes during its brief mandate than the country has introduced in 30 years. But the similarities end there. Greece is effectively bankrupt and needs a steady hand to guide it. Prime Minister George A. Papandreou ran out of political capital trying to impose austerity on a restive country. Some have criticized him for failing to carry out reforms fast enough, while no party alone has wanted to bear the political cost of stepping into his shoes. Mr. Papademos must also negotiate with the European Union and banks on the terms of a delicate voluntary write-down of Greek private debt so as to avoid a default amid a deep recession, a credit crunch and a climate of growing social unrest. In Italy, where the economic fundaments are far stronger than those of Greece, there is a new wind of optimism mixed with trepidation this week, as the debt crisis led to the abrupt end of the Berlusconi era. Its a historic moment, said Roberto Napoletano, the editor in chief of the business daily Il Sole 24 Ore, which has been running campaigns to alert Italians that their savings and businesses are at risk without credible leadership. Italy has to act, but it can do it. Indeed, Italy pulled back from the brink on Thursday as investors gained confidence that Mr. Berlusconi would be gone by Monday, replaced by Mr. Monti, an economist with an international reputation. That impression was underscored by the sight of Mr. Monti arriving at the Quirinal Palace on Thursday, where he met for two hours with Italys president, Giorgio Napolitano, who is responsible for picking a new head of government. Mr. Berlusconi himself sent Mr. Monti a telegram wishing him fruitful work in the interests of the country, the news agency ANSA reported. In contrast to Greece, which resents outside interference, Italy has often looked to technocratic leaders backed by outside powers in moments of political transition. It did so in the early 1990s,
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after the collapse of the postwar political order, and again in the mid-1990s, when a unity government pushed through changes that helped Italy into the euro. Today, many in the governing class see a technocrat backed by the European Union as the only force strong enough to dislodge an entrenched culture of political patronage that has grown worse under Mr. Berlusconi, despite the fact that he was elected three times on a reform platform. We have lost a capital of confidence, Mr. Napoletano said, adding that it was time for the country to invest politically in a government of people who have the capacity to do what for 20 years no one has done in Italy. By that, he said, he meant making the structural changes that economists say Italy needs to quicken growth and stay competitive, including making its labor market more flexible, creating a more efficient tax code and tax collection system, and cutting red tape. Since it was re-elected in 2008, the Berlusconi government has done virtually none of those things. While Italy is highly indebted and suffering anemic growth projected at only 0.1 percent in 2012 and 0.7 percent in 2013, according to the European Commission it has considerable assets. It has a high domestic savings rate and a manageable budget deficit, and the northern industrial region is considered among the wealthiest areas of Europe. But no one doubts the need for shaking things up. Asked this week why there was no figure like Margaret Thatcher in Italy, Mario Baldassarri, the chairman of the Senate Finance Committee, singled out the political class, saying, Because in Italy there are 3,000 or 4,000 people who count on waste and theft of public spending and now they are more powerful than 60 million people. But there were signs on Thursday that the status quo was giving way. The breakthrough came when a bloc in Mr. Berlusconis People of Liberties party appeared ready to support a government led by a nonpolitician, which would require a majority in Parliament. That goal seemed to be within reach, since the main opposition Democratic Party has already said it would back such a government, as would several crucial centrist groupings. There is much work to do. Im afraid the costs of disassembling a system of privileges and advantages, not just of the political class but also many people is hard, said Beppe Severgnini, a columnist for Corriere della Sera and the author of Mamma Mia! a new book about Mr. Berlusconi. The E.U. is only a babysitter, he added, its not a magician. Greece is a far different, and far more challenging, situation. Greeks have greater antagonism
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toward the European Union, and, to date, greater antagonism to structural changes. Although the urgency of the debt crisis may yet change the picture, past efforts at unity governments have been unsuccessful in a volatile society still scarred by a civil war between right and left in the late 1940s and a military dictatorship from 1967 to 1974. Some see the incoming prime minister, Mr. Papademos, as too beholden to the foreign lenders who helped bring Greece to its knees. Others say that as a technocrat, he will be less corrupt than the political class and may actually effect change. The fear among members of the Greek political class is that if Mr. Papademos fails, they will take the blame, and if he succeeds by laying off tens of thousands of public workers, cutting pensions and privatizing state properties they will lose their power. There is also skepticism about the extent of Mr. Papademoss powers in the face of the countrys ills. If unemployment is 20 percent at the end of the year, no politician, no political system, no technocrat can sustain such a mess, such a social burden, said Stelios Kouloglou, the director of an independent news Web site, tvsx.gr, in Athens. Thats the problem.

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