Giulio Tremonti seems to have received multiple attacks, finding himself in “the eye of the storm.” The Finance Minister of Italy has to handle the rising borrowing costs of the country and all the questions that the markets raise in their usual compelling manner; these questions refer to the ability of Italy to respond to its debt and fiscal deficit obligations. At the same time, Tremonti’s relations with Silvio Berlusconi, the Prime Minister, are strained, as the latter accuses him of “lack of teamwork” in his already fragmented government. Also, he has to oversee the promotion of the austerity measures he has prepared in order to prevent the bad scenario about an Italy’s bailout. Although most of the measures have been put off until after the 2013 elections, he may have to implement them hastingly in advance because of the pressures of the market. Moreover, Giulio Tremonti should face another challenge.
Italy’s Finance Minister is considered by the international financial community as the guardian of fiscal discipline in the country and is identified as the shield against Berlusconian populism and extreme expenses. However, he made an error incompatible with his overall political stance, according to which he has strongly affirmed his intention to crack down on tax evasion. Marco Milanese, Tremonti’s former close associate who is investigated on alleged corruption, has testified he had provided Tremonti a luxurious apartment in Rome on 1,000 euros rent per week.
The Finance Minister left the above residence, though not immediately. He publicly apologized and stated unequivocally that he will not resign. “I made a mistake, but I did not break the law”, said regretfully. The questions, however, remain.
In Italy it is common practice that undeclared personal income may take the form of cash payments, e.g. rent, home purchases, medical visits etc, so not to be taxable.
Although Tremonti’s image has been tarnished, he remains the only member of the rather unreliable Berlusconi government, who can speak seriously about the Italian economy. And the markets, even though they are pounding Italian bonds, they do believe that the Finance Minister may follow a road of strict fiscal discipline. However, Berlusconi, the “artist of survival”, according to FT Deutschland, was the one that from the parliament sent a vague message to the Italian people, asking for a united front for the economy and measures to support it. Not Tremonti. Maybe this shows his isolation, although he was sitting next to Prime Minister during his speech as a rare example of political unity. This had followed a meeting between Giulio Tremonti with Jean-Claude Juncker, the European Central Bank’s President, regarding the soaring spreads of Italian (and Spanish) bonds, and the soothing intervention of Joze Manuel Barroso, the President of the European Union.
The reasonable question is why the markets have targeted Italy. In a report Credit Suisse explains the reasons: the economy has stalled, the debt reaches 120% of GDP, structural reforms are not provided and the proposed by Giulio Tremonti cuts and increases in public revenue will be mostly implemented in 2013. Meanwhile, elections will take place and the outcome is unpredictable. Moreover, adds Credit Suisse, investors are seeking protection against the viability of the euro. If there is a possibility of a default – according to the market’s view -, the CDS market is not considered as the best tool, so they are turning to the Italian government bonds themselves. Besides all these, the political system seems extremely fragile. When, recently, Marco Milanese resigned from his post in the Ministry of Finance, the Italian bond yields rose.
“The political attack against me put in danger the euro and the Italian bonds”, Corriere della Sera, has quoted Giulio Tremonti, who comes from an old Venetian family. “Tremonti’s surplus value is made of the spread between Italian and German government bonds which so far remained on safety”. The Minister is a professor of Law at the University of Pavia, and his particular fields of interest are fiscal policies. During the current fiscal year he came in stark contrast to the rest of government, calling for new tax breaks, while he insisted on austerity measures because of the debt crisis in Eurozone. The former socialist has served in the same capacity and as Deputy Prime Minister in prior Berlusconi cabinets, although in some aspects he leans more towards the Northern League. He appears skeptical regarding globalization and advocates greater autonomy for northern Italy.
About the Author:
Ms. Katerina Kapernarakou is a journalist for the Greek newspaper “Kathimerini”, a contributor to the BusinessThinker.com, covering the international business, economic, and financial issues. She keeps a weekly page in the Saturday edition on the “Newsmakers of the Week”. She has worked for private and public R / S, as well as for the Greek Service of BBC WORLD. She is a freelance writer for business magazines. She has served as the Chair of the Greek Section of Amnesty International