Leading article: The eurozone will not survive if Mr Monti fails

 

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Is Mario Monti a good sleeper? We must hope so because he will need his wits about him in the coming months as he takes up the Herculean task of restoring confidence in Italy's stricken economy. It is no exaggeration to say that the challenges he faces are greater than any government in Rome has met since the fall of Fascism. In some ways they are greater, because in 1945, Italy's new government had only to draw a line under the Mussolini era and start afresh. Mr Monti does not have that option. The legacy of Silvio Berlusconi's disastrous handling of the nation's finances and the climate of corruption that he fostered during almost two decades in power will weigh on him throughout his time in office. At stake is not only the health of the Italian economy but the future of the eurozone.

The Prime Minister's immediate task is to follow through on the cost-cutting reforms that parliament adopted in the dying hours of the Berlusconi government. But this will not be enough even to begin to solve Italy's financial crisis. The package of reforms is welcome and overdue, but on its own it won't significantly relieve the burden of debt, now standing at 1.9 trillion euros, the size of which has worried the markets and raised concerns that the eurozone's third largest economy could default. Other tough measures must follow, possibly including a one-off, so-called "overnight tax" on every Italian household.

Beyond that, Mr Monti's bigger task is to recapture for Italy the elusive phenomenon of market confidence. Investors have to believe that he has the vision and the determination to undertake what no Italian government has attempted since the war, possibly since unification in the 1860s, which is to fundamentally change the way that Italy operates.

Hard though it may be to recall now, when Mr Berlusconi took office 18 years ago he promised sweeping changes: a more open, transparent economy and a society that rewarded hard work and initiative over bloodlines and connections to vested interests. What Italy got was more of the same old bad practices, only worse, resulting in stagnation, brain drain and growth in the debt mountain.

For now, the auguries for Mr Monti look good. The former European Commissioner may suffer from what is called a democratic deficit, having never been elected to public office. But in the eyes of the markets and of many Italians, his distance from Italy's tarnished and corrupt political scene counts as a plus. As soon as he was sworn in as prime minister, interest rates on debt fell below the level of 7 per cent, the rate seen as unsustainable for more than a few weeks without pushing the country towards default.

But no one should be deceived into imagining that Italy has already turned a corner. This is just the honeymoon period, while the jury is out and while markets weigh up whether they believe that Mr Monti can deliver. If they detect any loss of resolve and momentum, interest rates will climb again, once more crossing the threshold of 7 per cent. In that case, alarm bells will be ringing all across Europe for the simple reason that, as has often been said, the Italian economy is too big to rescue. No financial firewall currently exists to guarantee debts as large as Italy's, so a default might then be unstoppable, inflicting such damage to those banks in neighbouring countries that are most exposed to Italian debt that the single currency could not survive the shock.

We in Britain would not be safe from such an alarming eventuality. The eurozone takes almost half our exports, so our economic fates are almost interlocked. For this reason the success of Mr Monti's government is not some remote, academic question. To a significant degree, Britain's own future hopes of prosperity depend on it.

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