But now, seven months after the well-regarded economist Monti was tapped to replace billionaire playboy Silvio Berlusconi, faith in the Italian government is again plummeting — inside and outside the country. And with global investors increasingly squeamish about lending Italy money, the interest rate on government bonds is soaring again, breaching the dangerous 6 percent level on Monday.
With concerns about Greece ebbing a bit after a pro-bailout party prevailed in elections Sunday, Italy — along with Spain — is moving back into the cross hairs.
Monti’s problems are as much about politics and public perception as they are about the economy. Since he and his team of technocrats took over, they’ve managed to push through a number of radical belt-tightening measures, aimed at taming the government’s mammoth debt, but have failed to reassure nervous investors. The cost of lending Italy money, especially as measured in terms of the interest-rate “spread” compared with safe German bonds, resumed its ascent three months ago.
“We’re dealing with market psychology, which due to investors’ prejudices believes Italy will be the next domino to fall,” said Nicholas Spiro, managing director at Spiro Sovereign Strategy in London.
Italian media outlets, which in the beginning hailed Monti as a hero, have begun criticizing him with gusto. Vauro Senese, a popular political cartoonist for Il Manifesto newspaper, drew a cartoon featuring Monti with a top hat and cane titled “Spread Astair.” Another depicted a future scenario in which the people of Italy are ushering Monti out the door. It states, “When Berlusconi left, Italians threw coins at him. When Monti left, they didn’t have even that.”
In an op-ed last week in La Repubblica, Editor in Chief Eugenio Scalfari, who had supported Monti in the past, blasted him for appointing ineffective heads of public agencies who had been in the previous administration for political reasons. “Monti,” he wrote, “has lost his allure.”
Monti’s approval rating has fallen steadily from a high of 71 percent in December, shortly after he became prime minister, to 33 percent in June, according to the SWG-Agora poll.
For the rest of the world, the prospect of a meltdown in Italy is so alarming because of the nation’s sheer size: It is the world’s eighth-largest economy and 21
2 times the combined size of Greece, Portugal and Ireland — the three European countries whose governments have been bailed out so far — and 40 percent larger than Spain.
Much of the world’s attention in recent days has been on Greece, where a government default and exit from the euro zone were looking ever more likely until the elections Sunday. Although the fallout if Greece left the euro zone could be enormous, many economists say the financial damage could be contained if it was addressed in a gradual and in an orderly manner. And if Spain were to need an international bailout, it could be cobbled together, in theory, though at great expense.