Bloomberg News

Monti Frontrunner to Inherit Berlusconi Task to Revamp Italy

November 13, 2011

(Updates with Senate approval in second paragraph, bonds in sixth. For more on the debt crisis, see {EXT4 <GO>}.)

Nov. 11 (Bloomberg) -- Mario Monti, a former European Union competition chief, once told companies like Microsoft Corp. what to do. As Italy’s next premier, he would face a tougher task getting Italians to overhaul the region’s third-biggest economy.

A 68-year-old adviser for Goldman Sachs Group Inc., Monti is a leading candidate to take over from Prime Minister Silvio Berlusconi should the world’s fourth most-indebted country turn to a new government with broad support to tame the debt crisis. Berlusconi has pledged to resign as soon as parliament approves budget measures pledged to the EU. The Senate passed the bill today in Rome and the Chamber of Deputies will vote tomorrow.

“Monti knows the economic and monetary issues well, and he knows lots of people at the International Monetary Fund and the World Bank,” said Goetz Drauz, his deputy as competition commissioner and now a lawyer with Wilson Sonsini Goodrich & Rosati in Brussels. “He does care what people think of him: He wants to be well seen and well respected.”

After Berlusconi steps down, President Giorgio Napolitano will begin consultations with political parties on the formation of any new government, as the country tries to implement growth and austerity measures demanded by the European Central Bank. Opposition leaders such as Gianfranco Fini have voiced support for Monti, who was named a senator-for-life by Napolitano this week in a decision backed by Berlusconi, according to Angelino Alfano, head of the premier’s party.

No ‘Instability’

A government will be formed soon or the nation will move quickly to elections, Napolitano said on Nov. 8, ruling out “prolonged political instability.” The yield on Italy’s 10- year bond breached the 7 percent threshold on Nov. 9, the level that drove Greece, Portugal and Ireland to seek bailouts, after Berlusconi’s majority unraveled and clearing house LCH Clearnet SA said it would demand additional collateral on Italian debt.

Italian bonds rose for a second day following the Senate vote amid Monti’s possible appointment. The 10-year yield fell 24 basis points to 6.64 percent at 1:38 p.m. Rome time, after dropping 36 basis points yesterday.

Italy needs “growth and competitiveness” to restore confidence and demand for its debt, and for “all political forces to contribute to unpopular efforts in the short term,” Monti, an economist and president of Milan’s Bocconi University, said at a conference in Rome on Nov. 4, Ansa newswire reported.

Monti’s appointment still depends on getting backing from Berlusconi’s People of Liberty party. The party remains divided over whether to support a new government or seek early elections, and will meet tomorrow or Nov. 13 to make a decision, Transport Minister Altero Matteoli told reporters in Rome today.

“Even Berlusconi is not against elections, but he’s worried about the markets,” Matteoli said.

Tackling Takeovers

Monti spent almost a decade in Brussels as EU commissioner, first for the internal market and then for competition. In the latter role, in 2001 he blocked General Electric Co.’s $47 billion takeover of Honeywell International Inc., the first time the EU had stopped a deal previously approved by U.S. authorities. He also levied a record 497 million-euro fine against Microsoft Corp. that went further than a 2001 settlement between the software maker and U.S. regulators.

“He has a good reputation in Brussels, which will be very important,” said Drauz. “He understands complex issues.”

Italy’s economy is stalling as the debt crisis takes a toll on demand and confidence. Gross domestic product growth may slow to 0.5 percent next year from 1.5 percent in 2010, the EU said in a forecast yesterday. That and surging borrowing costs will make it harder to reduce 1.9 trillion-euro in debt that amounts to 120 percent of GDP, the second-biggest ratio in the currency region after Greece.

New EU Request

The measures to be approved by parliament before Berlusconi resigns aim to boost an economy whose growth has trailed the euro-region average for a decade. While Italy approved 45.5 billion euros in austerity moves in August to secure ECB support for Italian debt, the European Commission told the nation in a letter this month that it must also design additional measures to meet its goal of balancing the budget in 2013.

Appointed as EU commissioner in 1994 by a Berlusconi-led government, Monti was reconfirmed in 1999 by then-Prime Minister Massimo D’Alema. Berlusconi chose not to reappoint him in 2004 after winning back power, choosing instead a political ally.

Monti became founding chairman of Bruegel, a Brussels-based research body focused on economic issues. He “would back liberalization of Italy’s labor market and would be able to draw support from both sides of the political spectrum,” said Vincenzo Scarpetta, an analyst at Open Europe, a policy institute based in Brussels and London.

‘Less Dogmatic’

“He has a great capacity for listening before he talks, which makes his word even stronger” said Jean-Paul Tran Thiet, a competition lawyer at White & Case LLP in Paris who has worked with Monti. “He also knows when he has to adapt and be pragmatic. He was much less dogmatic than the commissioners that followed him, and he was far more efficient than the ones that preceded him.”

Monti has been an international adviser at Goldman Sachs for six years. The company’s international advisory board assists the company on public-policy issues and strategic advice to clients. A Goldman Sachs spokeswoman in London said Monti still holds the position.

He would join the club of former Goldman Sachs employees now steering economies around the world that has helped earn the company the nickname “Government Sachs.” The group includes former Bank of Italy Governor Mario Draghi, who became president of the European Central Bank this month, and Bank of Canada Governor Mark Carney. Onetime Goldman Sachs economists William Dudley and Ben Broadbent help set monetary policy at the Federal Reserve and Bank of England, respectively.

Setbacks

As competition commissioner, Monti faced some setbacks. An EU appeals court overturned three of his rulings in 2002, prompting him to intensify cooperation with U.S. authorities and review EU merger rules to provide a greater role to economic analysis and give companies more time to present their case. The same court in 2004 annulled the EU’s veto of MCI Inc.’s $115 billion takeover of Sprint Corp. in 2000.

In his earlier role as commissioner for the internal market, Monti took on politicians including former German Chancellor Gerhard Schroeder over the 150-year-old system of guarantees to state-owned banks such as Westdeutsche Landesbank Girozentrale and former French President Jacques Chirac over aid to former monopolies such as France Telecom SA.

Tall Task

Now he may have to confront the task of liberalizing Italy’s labor market and service industries, reducing public spending, streamlining the public administration and selling off state assets, all of which were demanded by the ECB in an August letter to Italy, according to a copy on Corriere della Sera’s website. Monti’s program would “basically be what the ECB asked us,” Mario Baldassarri, chairman of the Italian Senate Finance Committee, said in an interview.

While Italy has a tradition of reaching out to non-partisan leaders in times of crisis, the new government’s mandate can’t go beyond the end of the legislature’s term in April 2013. How Monti might handle the pressure and criticism that inevitably would come from imposing unpopular measures remains to be seen, said Drauz, his former deputy.

“The fact that he seems to want this job means he must have thought it through and decided he can take the pressure,” Drauz said.

The son of a banker from the northern Italian city of Varese, Monti earned a degree in economics and management from Bocconi in 1965 and then did graduate work at Yale University. In the 1970s, as a consultant at Banca Commerciale Italiana, Monti was the first economist to calculate Italy’s money supply in real terms at a time when inflation accelerated as much as 20 percent. In 1981, as head of a Treasury committee, he helped ease rules for investing abroad.

“He comes from an academic background and always explains things in a reflective way,” said Drauz. “He’s not a man who shows much emotion. Maybe that’s what Italy needs right now.”

--With assistance from Simon Kennedy in Rome and Elisa Martinuzzi in Milan. Editors: Jeffrey Donovan, Jerrold Colten

To contact the reporter on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net.

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net.


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