Now Italy's Monti Wants to Save Europe

In November, Mario Monti, the former European Union official and academic, was tapped by Italy’s President to form a government after Silvio Berlusconi’s regime crumbled. At the time, heavily indebted Italy looked like the next domino to fall.

Under Monti as Prime Minister, Italy has done the unthinkable: regained investor confidence. His government has pushed through €20 billion ($26 billion) in austerity measures, and moved to deregulate services and reduce red tape. He’s pursuing plans to simplify the tax code and overhaul rigid labor rules. Helped by the European Central Bank’s liquidity injections into the euro area’s banks, Italy now enjoys lower borrowing costs: The yield on a 10-year bond has fallen by about 1.5 percentage points since Monti took office, easing fears the nation would struggle to pay its $2.5 trillion debt. Monti “has been a game-changer,” says Nicholas Spiro, managing director of Spiro Sovereign Strategy in London.

Italy is hardly solved: Left-wing unions bitterly oppose Monti’s push to change labor laws, growth is almost nonexistent, and that debt isn’t going anywhere. Yet Monti is launching a new crusade: He wants Europe to stop focusing exclusively on austerity and cultivate growth as well. He’s not talking about growth inflated by stimulus packages and more borrowing, rather a program of deregulation that would unleash growth in Europe.

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