March 28, 2012

Mario Monti's Big Challenge

Mario Monti (Reuters)
To boost growth and overcome its protracted debt crisis, the eurozone needs to undertake “ambitious structural reforms” aimed to reduce restrictions on labor mobility, ease job protection and change the wage bargaining system, says the OECD in a report released today. In Italy, the call for further reforms comes as a big help to Mario Monti in the wake of opinion polls showing a steady decline in support for the Italian prime minister—an ISPO poll for Sunday’s Corriere della Sera showed support down to 44 per cent, from 62 per cent in early March—who is spearheading a spate of labor reforms. More explicitly, OECD Secretary General Angel Gurria said that the reforms which the current Italian government has undertaken represent a major and consistent step towards finding a solution to the country’s most pressing labor market issues.

A well deserved support for Monti as well as for those who, in turn, support his efforts for a major overhaul of Italian labor laws (including the totemic Article 18 of the 1970 Workers’ Statute), namely the measures that were hashed out during a marathon meeting one week ago among ministers, labor unions and business leaders, and aimed to usher millions of young people into the job market and help the country’s struggling companies manage economic downturns by cutting jobs, but also create a wider safety net for the jobless.

The problem is that “unfortunately” (the inverted commas are necessary here, of course) the measures still need to be presented and approved by Parliament. In fact the center-left Democratic Party, which is one of the three parties of the “great coalition” supporting the government, has an understandable but irrational reluctance to vote the “unacceptable” bill—even in the light of the fact that Italy’s largest labor union, the CGIL, didn’t sign off on a key part of the overhaul and announced 16 hours of stoppages including a day-long general strike to fight the reforms. “If Parliament backs us, we will be able to say that Italy'’ labor market has modernized, and that there are no more hurdles to foreign investment,” Monti said during a news conference before heading to Asia, where he is now spending a few days to persuade foreign investors to put their money into Italy...

Well aware of the risks his government is running, Mario Monti said on Monday in another press conference (in Seoul, Corea) he would not cling to power if unions and politicians rejected his economic reform plans, putting pressure back on to opponents of the bill. “The objective is a lot more ambitious than just staying there. It’s trying to do a good job,” he said. “If the country, through its labor organizations and political parties, does not feel ready for what we consider a good job, we would certainly not seek to keep going just to reach a particular date.”

Strong, courageous words, and a big challenge, without a doubt. After all, as the WSJ rightly reminds, standing up to Italy’s labor unions takes courage, and not only of the political sort. Furthermore, since coming to power in November, Monti has passed some measures by emergency decree, bypassing parliament, but last Friday he announced that the bill would be voted upon in the parliament in the normal way. Another act of courage, says the WSJ—but, to be honest, it was President Napolitano’s credit (or fault, depending on the points of view...). However, as far as one can reasonably expect, the bill will be approved by the parliament, and this for the simple reason that no one wants the government to shut down.

Be it as it may, the WSJ piece is worth reading and remembering. Here are some excerpts from it:

Italian Prime Minister Mario Monti has walked away from negotiations with Italy's labor unions and announced that he is going to move ahead with reforming the country's notorious employment laws—with or without union consent. If Rome is spared the fate that recently befell Athens, mark this as the week the turnaround began.
Mr. Monti has three chief advantages over his recent predecessors. He remains popular in Italy. He also says he doesn't intend to run for re-election. This gives him a chance to maintain control over his reforms as they move toward a parliamentary vote.

More importantly, Mr. Monti—a former economics professor—has a rare opportunity to educate Italians on the consequences of opposing reform. This won't require sophisticated explanations of why employers will still employ people even when the law does not force them to do so. He can merely ask Italians to look across the Ionian Sea. If that doesn't scare them sober, then nothing will help.

Postwar Italian politics has chewed up more than a few would-be reformers while career politicians and union leaders enjoy the spoils of power. The difference with Mr. Monti is that he didn't take this job to be a caretaker PM. If he means to make his current reform the first, not last, step in a more ambitious agenda for reviving Italian growth, he could make his one term in office a great one.

UPDATE March 28, 2012 - 9:45 am
Mario Monti, addressing the Forum organized by the Nikkei Shimbun editorial group in Tokyo to explain Italy’s political, economic and institutional situation: “It’s a reform that causes resentments and some sharp discussions in Italy. But I believe that the majority of Italians believes it is a needed step, in the workers’ interest.” “This Government has a wide consensus in the polls while the parties do not.” (AGI)