The Euro had a confusing day today as the positive news that technocrat Mario Monti would lead the new Italian government was tempered by the surprise announcement that he too would be the new finance minister. Markets are generally fearful of anything which may be considered autocratic as it has previously been associated with market distortion and the stifling of free market economics. The news of Mr. Monti´s cabinet domination, however strange, cannot be considered in the same group as the leftist autocrats of previous decades and both his credentials and competence as a free market supporter cannot be questioned. Italy’s cabinet is now made up exclusively (with the exception being the Defence Minister) of economists, financiers and bankers; seeking to solve Italy’s largest economic crisis for a generation by removing politicians from the equation.
One of the most striking and most interesting things about this duel-role is going to be in the simple problem of his division of time. Clearly, Mr. Monti is a human being, requiring to eat, sleep and take the occasional bit of time to relax, yet he appears to have taken on two mammoth roles without even the suggestion that it may be too much for a former European Commissioner. Having little experience of political leadership this must be a fairly daunting role which even political dinosaurs would find challenging. The position of finance minister of the third largest economy in Europe is, from a pragmatic point of view, a difficult and all-consuming role even without a financial crisis.
On its own it may have been the ideal role for Mario Monti given Italy’s current situation. However, the added complication of trying to dominate the domestic political sphere will consume much time and energy for a non-political cabinet who have both the opposition and the omnipresent powers of Mr. Berlusconi to contend with. International debt resolution will be the primary aim of the Italian Prime Minister, although if the Greek crisis is anything to go by, it will take a particularly deft handling of the domestic political agenda to maintain support especially when dealing with austerity measures. Mr. Burlusconi, in a Putin-esque announcement, has already said that he is prepared to ´pull the plug´ on the new government if it fails to impress him. This will be another political battle which a technocratic team may find difficult to overcome.
The Euro currency’s mixed reaction to this news was also combined with a string of negative data released today. This included the EU inflation rate which, whilst being in line with expectations, is still at its highest regional level since 2008. As a result it is weighing heavily on European businesses who are contending with the twin problems of decreasing demand and rising costs, a potentially unsustainable situation and a likely cocktail for recession. In the UK the Bank of England made some negative noises confirming to the markets that is CPI is likely to be below 2% for the next two years whilst today’s figures also show a higher than expected rise in unemployment. With all this regional dour news it is unsurprising that the Euro fell to below the 1.3500 level against the USD today.