The Most Important Man in Europe

Here is a very interesting article from TIME magazine I really want to share with you guys. The photo of Mario Monti is the cover of Time magazine in Europe and asian edition.


At first glance, it seems impossible that the fate of the world economy rests in Mario Monti's hands. The Prime Minister of Italy has the aura of a gentlemanly grandfather--the polite demeanor, the soft voice, the smiling eyes--not the tough taskmaster Italy so desperately needs to escape its dangerous and protracted debt crisis. Monti, 68, speaks in the long, precise, jargon-laden sentences of an academic economist, which he was only four months ago. He does not employ the rousing rhetoric of a typical politician. He seems like the sort who'd get chewed up by Italy's political machine, not reform it.
Listen to what he says, though, and the real Monti emerges. His words are edged with steel. He talks not merely of ending Italy's economic crisis but also of pursuing a sweeping agenda to set free the energies of a moribund economy, fixing a deadlocked democracy and charging forward with greater European integration. Listen carefully and you realize Monti is not hoping for quick fixes. He's aiming at nothing less than a wholesale overhaul of Italian society. As he recently told TIME during an interview in the Prime Minister's stately office in Rome, "I believe that reforms will not really take hold if they do not gradually come into the culture of the people."
Monti's mission matters to everybody--from Wall Street financiers to Chinese factory workers. That's because Italy's problems have become the world's problems, and Monti must fix Italy to prevent another global financial crisis. His most pressing issue is the precarious state of Italy's national finances, including a mountain of government debt equivalent to more than 120% of GDP--the second highest level in the euro zone, after that of troubled Greece.
But Italy's difficulties run even deeper. From 2000 to 2007, Italy's GDP grew at an average annual rate of 1.5%, compared with nearly 2.2% for the euro zone overall. Though Italy's economic woes are nothing new, when the contagion from the European debt crisis struck, it focused investors on Italy's enfeebled condition. In mid-2011, they began fleeing Italian government bonds, sending 10-year yields past 7%--a level that would eventually become too expensive to bear. The terrifying possibility emerged that Italy--the euro zone's third largest economy--could default or require a large-scale bailout.
And as Italy goes, so goes the euro. Italy looms as the biggest threat to the embattled currency's survival, because Italy is paradoxically both too big to fail and too big to save. While Europe rescued Greece, Ireland and Portugal, a bailout of Italy would require such huge sums--by one estimate, $900 billion--that its neighbors, including giant Germany, would likely be unable, financially or politically, to ante up the cash. Yet if Italy tumbles into insolvency, it could set off a chain of events that unravels the monetary union and puts Europe's even grander half-century experiment in democratic integration in peril.
The consequences of an Italian default--and even worse, a collapse of the euro--are almost unimaginable. Shock waves would ripple through global financial markets to every corner of the world, sinking banks and economies along the way. The fates of Monti, Europe and the worldwide recovery have thus become inexorably entwined.
Monti ended up in this position through one of the more unusual twists in modern European governance. His predecessor, the colorful Silvio Berlusconi, had dominated Italian politics for a decade, but as the crisis spiraled in late 2011, he proved unable to rally the country's politicians to tackle it. Discredited, Berlusconi resigned in November. The failure, though, was not his alone. Italy's political establishment woke to the reality that partisan politics had failed the nation. The left and right "are both incapable of doing the reforms," says Pier Ferdinando Casini, leader of the Union of the Center political party. "We are afraid of losing votes."
The solution was Monti. Italy's President, Giorgio Napolitano, called on him to step in and run the government. The Yale-educated economist was president of Milan's Bocconi University, and he had studiously avoided the corrupting influence of Italian domestic politics throughout his career. But, he says, the request to serve came "at such a severe time of crisis for Italy that I could not refuse."
Today he reigns over Rome like a new Caesar. In effect, the democratic process has been suspended to allow an unelected technocrat to implement policies that elected politicians could not. Monti calls it a "temporary mutual disarmament" of the left and right. Nearly all the major political parties set aside their differences and threw their support behind him, and that has given Monti almost uncontested control of the nation's decisionmaking.
He has used his mandate to the fullest. In December he implemented a biting austerity program of tax hikes and spending cuts, aiming to balance the budget by 2013, and a reform of the country's pension system with phased increases in the retirement age. In January he announced a sweeping liberalization of professions that are regulated and protected from open competition, like pharmacists, taxi drivers and lawyers. Next on the agenda is a major overhaul of the distorted labor market to make it more flexible and create jobs for the nation's army of unemployed youth. His efforts have already had an impact. Bond yields have fallen by about 1.5 percentage points since Monti took charge, to (a still elevated) 5.6%, easing fears of an imminent European meltdown.
Conflicts with Interest
Not everyone is enthralled, of course. Monti is taking on entrenched interest groups that have repeatedly defended their privileges, and they're not going down without a fight. Taxi drivers staged strikes in Rome and other major cities. Pharmacists are threatening to do the same. Truckers blocked roadways to protest a fuel-tax hike. To these constituencies, Monti's reform agenda is radical, even dangerous. "In Italy, the economy was more based on rules that used to be applied to create wealth for the general public," says Loreno Bittarelli, president of Uritaxi, a national taxi union, which is opposed to Monti's program. "I don't understand why suddenly the only solution [to the crisis] is to get rid of the rules." His enemies see him as an elitist who is unsympathetic to the struggles of middle-class Italians. "Monti has always lived in the salons," says Bittarelli. "He really doesn't know the problems of ordinary people."
Monti's response might surprise. "Maybe they're right," he says. Though Monti has attempted to appeal to the masses--he refused to accept his Prime Minister's salary out of a spirit of shared sacrifice--he cannot honestly claim to be a man of the people. His father was a banker, and Monti was once an adviser to what some see as the quintessence of rapacious capitalism: Goldman Sachs. He has not run in any election for any office, and his friends think he never will.
Monti believes his detachment gives him an edge. The cozy relationship between politicians and their constituents, he argues, is the exact source of the nation's woes. "Italy has piled up huge public debt because the successive governments were too close to the life of ordinary citizens, too willing to please the requests of everybody, thereby acting against the interests of future generations," he says.
And don't expect him to bend. While he was commissioner for competition at the executive body of the European Union from 1999 to 2004, he earned the nickname Super Mario for butting heads with some of the world's most influential businessmen, from Microsoft CEO Steve Ballmer to former General Electric CEO Jack Welch. In 2001, Monti squelched a merger of GE and Honeywell, charging that the combination would smother competition in the aviation-equipment industry. Monti came under intense pressure from the U.S. to change his mind--Paul O'Neill, then U.S. Treasury Secretary, labeled his stance "off the wall"--but Monti refused to blink. Welch describes him as "cold-blooded."
The Danger of Success
Ironically, the more successful Monti becomes, the more trouble he might face. The country's politicians have backed him only because of the economic crisis, so the more reforms he implements and the further Italy pulls back from the brink, the less incentive they have to support him. As austerity measures begin to hurt, his popularity could also begin to evaporate. That potentially leaves Monti with a very narrow window of opportunity to implement change. In theory, he will remain Prime Minister until the next election, in the spring of 2013--barely enough time to realize his agenda--but he could find that window closing long before then. "The point is how to keep this pressure [to reform] even once the most visible elements of emergency hopefully are over," Monti says.
For Monti, the future of Italy and the future of Europe are intrinsically connected. He has always been a passionate advocate of European integration and has consistently pressed for more of it. In his TIME interview, Monti expressed gratitude for the support given to him by the rest of Europe but lamented that faster euro-zone reform might have blunted some of the worst effects of the crisis. An unwillingness to devote sufficient resources to expand the zone's bailout fund, for example, has hampered the creation of a so-called firewall to protect Italy and other struggling countries from contagion. He also favors the introduction of eurobonds, which would be backed by all euro-zone governments, though other European leaders have fiercely opposed the idea. However, the bickering that has stymied such action, he believes, may finally be coming to a close. "I think there is a genuine wish on the part of the E.U. and Germany and France to again play an active game with Italy for a relaunch of European integration," he says. "I think we will be seeing an acceleration of the good news."
He's seeking more good news in the U.S. On Feb. 9, Monti has a high-profile summit with President Obama, and then he is off to New York City for meetings with the U.S. financial community. If he can convince global investors that Italy is truly reforming and is a safe place for their money, he will alleviate any fears of an Italian default. That alone would help further Monti's status as the man who's saving Europe. Italy's problems, though, run so deep that reform will need to continue long after he exits the scene. Monti hopes his administration can act as an example for his successors--of the benefits of the spirit of compromise. "Others will come," Monti says, and they will sense that public opinion no longer tolerates daily political conflicts whose objective is "to destroy your adversary and not to save the country." Italy and the entire global economy can only hope that is true.