Who is Mario Monti?
It's hard imagining Italy going from bad to worse, but Mario Monti might be a worse choice for Italian president than Sylvio Berlusconi, who resigned over the weekend as Italy's state finances came close to collapse. Berlusconi presided over a corrupt state, and personified its worst excesses in the form of alleged orgies with underaged prostitutes. In general, though the outgoing Italian prime minister was pro-American.
Mario Monti hates America, viscerally. Over dinner with a friend of mine not long ago, Monti weighed in on the Americans: "They're idiots. They think Venice is in Las Vegas." He continued in that vein until my friend shut him up.
In a new Macrostrategy report, I review his sorry record of protectionist hostility to American business:
What do we know about Italy's new president, Mario Monti? An academic economist and former European Commissioner for Competition, his most notable act in office was to block the proposed merger of GE and Honeywell in 2001. As the Economist reported at the time, "President George Bush and several senators have grumbled publicly at what they see as unwarranted interference in an all-American deal, and have hinted that Mr Monti’s true aim was to protect European companies. That has politicized the whole question of antitrust policy and opened a new front for transatlantic tensions." Monti made his career, that is, by blocking precisely the sort of corporate opening that today might give Italy a chance for recovery. He is a creature of Europe's self-insulating political elite.
Monti set forth a utopian vision of a united Europe on the eve of the crisis in a May 2010 report to the European Commission entitled, "A New Strategy for the Single Market." The report drew on extensive consultations with constituencies, and offers this disturbing comment:
An uncomfortable feature of the single market today emerges prominently from the consultations, although it is seldom brought out explicitly: the single market is less popular than ever, yet it is more needed than ever. Highlighting this contrast will perhaps be considered political incorrect. But only by addressing it openly will it be possible to work for a genuine and sustainable relaunch of the single market.
Prof. Monti, in short, believes in pressing impractical schemes even when no-one wants them. In this, he and Chancellor Merkel are united in a Folie à Deux (mutual delusion, but somehow it seems more appropriate to say it in French). Their chances success range between tiny and nil.
Even on the verge of bankruptcy, the America-haters in Europe can't control themselves. The only hope for Italy is to shed its kleptocratic model of institutionalized corruption. Nearly 30% of the Italian economy is underground, that is, untaxed -- no wonder they have a catastrophic budget problem. The comparable figure for America is 8%. American banks have already offered to take over the viable portions of Italy's banking system, which is the best thing that could happen to the country -- to bring in bankers who run their businesses for profits rather than for political chicanery. And the Chinese have quietly let it be known that they would consider buying Italy's big state-owned energy companies.
That's how you solve a liquidity crisis: you give up equity control to outside investors who can run things better. We don't know what Monti will do, of course, but on the strength of his record, he is likely to continue protecting Europe's failing elite from global competition. And that will ensure that Italy follows Greece down the road to bankruptcy.
So fasten your seat belts. It's going to a nasty few months. The point of financial crises is to put assets in the hands of people who deserve to own them, says my friend Neal Soss, the chief economist at Credit Suisse. Ultimately Italy's productive assets will end up in the hands of people who deserve to own them. The way things are going, not many of them will be Italian.