Tuesday, 20 September 2011

Trains Running On Time Is Not Enough

The attention given by the markets to the southern periphery of the Eurozone has now focused on Italy, with the country being given a sovereign debt downgrade by agency Standard and Poor’s from A+ to A, which puts it behind many large companies (Siemens, as we know from the Thameslink saga, has a credit rating of A+). The response has been telling.

S&P’s judgment has been denounced by “Duce” Berlusconi as being driven by “political considerations”, and for once he is dead right: the political consideration is that he is Italian Prime Minister, and useless with it. There is more attention being given to his extra-curricular activities than to addressing Italy’s sclerotic Government, weak growth, and endemic tax evasion.

As I’ve already noted (see HERE, HERE, HERE and HERE), the situation in Greece has always been going to end up with those further down the food chain of lenders taking less than 100 cents on the Euro. What needs to happen, though, is that restructuring of Greek debt is done in an orderly and disciplined manner for there to be an orderly and disciplined result for the country and the Eurozone.

In the case of Italy, which is also sitting on a significant amount of sovereign debt – much of which needs to be rolled over very soon – the prospect of lenders not getting their money back may not be yet in view, but unless the country gets some leadership in short order, rather than the clown that Berlusconi has become, matters could get worse, and fast.

While the wider Eurozone needs the ECB and its partners to move more rapidly on the European Financial Stability Fund (EFSF), the Italians need to wake up to the fact that their Government has lost the confidence of even the country’s own employers’ organisation Confindustria (the equivalent of the CBI), whose president has said that “Duce” has to start reforming, or resign.

When your country has had average growth of 0.2% for the past decade, and needs to get to grips with its debt, the last thing you need is a Prime Minister mired in allegations of sex parties, favours for pimps, and the more routine bribery and corruption. As with the original “Duce”, making the trains run on time – generally true nowadays – is not in itself enough.

It is time for Silvio Berlusconi to go.

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