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Today, as debt costs soar, the new Italian Prime Minister puts his job on the line for change.
ROME, Italy – Until now, Mario Monti was best known as the man who took on General Electric a decade ago, at the height of the company's power. Back then, as Europe’s competition czar, he stood up to GE's legendary CEO Jack Welch, dramatically blocking the company’s proposed $40 billion takeover of rival Honeywell.
Monti's move came after the GE-Honeywell deal had the blessing of the US Justice Department. The EU’s approval was almost considered a forgone conclusion. But Monti and his team studied the details closely, found an array of antitrust concerns and surprised Welch — and much of the business world — by rejecting it.
Now, with the health of the world’s eighth largest economy and Europe’s single-currency in the balance, Monti will again attempt to confound naysayers.
Monti was sworn in as Italy’s newest prime minister on Wednesday. His first act was to name a new cabinet. He boldly kept the key minister of finance portfolio for himself, and selected 16 other ministers from the ranks of diplomats, private sector figures and government technocrats.
There isn’t a single politician on the roster.
The former ambassador to Washington will become minister of foreign affairs. The CEO of Italy’s second largest bank will be the minister of development and infrastructure. A veteran climate change negotiator will take over the Ministry of Environment. The Ministry of Tourism and Sport will be run by the chairman of the country’s leading electric utility. And a newspaper columnist and author will be the new minister of welfare.
It is a classic technocratic government, removing politics from the equation. The idea is that a competent team of managers with no re-election concerns will not shy from making difficult decisions. But in order for his platform to be implemented, Monti will need approval from Italy’s parliament, a contentious beehive that the new prime minister has already snubbed from his government.
Read more: France gets sucked into the debt crisis.
A day after forming his government, he outlined a bold austerity program in a speech before parliament. It includes liberalizing the markets for labor and professional services, reforming the pension system, reinstating a property tax abolished by his predecessor, and gradually reducing taxes to promote growth.
Today, three days into his tenure, Monti won a confidence vote by a huge margin — 556 to 61 — that gives him a mandate to make these changes. Calling the confidence vote was a risky move. If he'd lost, he would have been forced to resign. Upping the ante, Monti had initially set the vote for next Tuesday, but at the last moment he rescheduled it for today.
“Monti has to act and he has to act fast,” said Franco Pavoncello, president of John Cabot University in Rome and a frequent political commentator. “He has a small window of opportunity in which he will have widespread support because the country is on the brink and people are worried. But it won’t last long.”
Eventually, Monti’s honeymoon will wear off. Pavoncello predicts it will take three months before his efforts will start taking on a more political feel. Others say Monti’s mandate could last a little longer. Few think his tenure will survive until the next scheduled elections, set for 2013.
“Nobody in Monti’s position is going to please everyone, so the trick is going to be to displease everyone equally,” said Antonio Meridiano, an author who wrote a book about Italy’s last technocratic government, which lasted for 16 months in 1995 and 1996. “Each side has to believe they are suffering the same amount as the others. The longer Monti can walk that tightrope, the more successful he will be.”
The fate of the euro could depend on what Monti does in the coming days and weeks.
The cost of financing Italy’s debt last week surpassed the 7 percent threshold that sent Ireland, Portugal and Greece scurrying for bailout help earlier this year. Italy’s debt — at 1.9 trillion euros — is so large that a bailout would be difficult to engineer. If markets continue to demand high rates of interest, default would be a real possibility, forcing an end to the euro zone as it now exists.
If anyone can rescue Italy, Monti is a strong contender. He clearly did not rise to the prime minister post unprepared.
“The qualities he brings to the job are intensity, determination and a huge intellect,” said a former aide, who asked not to be further identified. “I know he has been reflecting on Italy’s problems for a time now and that he is ready for the job.”
Being prepared has always been a hallmark of Monti’s, as illustrated by the GE-Honeywell case. There, Monti’s team was so familiar with the factors in the deal that they repeatedly caught GE officials flatfooted. And when Welch flew in to Brussels in an attempt to smooth things over, Monti showed the kind of flair Italian politicians are known for.
The world’s most famous CEO at the time, Welch attempted to play on his image when he met the then-newly-installed Monti, opening with a friendly, “Mario, call me Jack.” Monti famously replied, “Mr. Welch, since we have a regulatory proceeding under way, I feel the proper approach would be to keep things on a formal basis. You can call me Signore Monti.” When the deal was officially sunk months later, Monti allowed himself a little jab when he spoke to Welch a final time. “Now,” Monti said, “I can say to you, goodbye, Jack.”
If Monti is similarly glib after a few months as prime minister, it will be a good sign for Italy.