Tuesday, November 29, 2011

How is This Going to Work?

From the FT today:
The auction came as Mario Monti, Italy’s new prime minister leading a caretaker government of technocrats, appointed the rest of his team, with three deputy ministers and 25 under-secretaries sworn in on Tuesday morning. Vittorio Grilli, director of the Treasury, becomes deputy minister for the economy. None of the appointees are politicians.

Mr Monti said his government was “slim and strong” and was acting out of a spirit of “national interest”. However, he still depends on the support of the main centre-right and centre-left parties in parliament – who refused to join the government – in order to pass his planned reforms and budget-cutting measures.
Emphasis mine.  For all that a lot of us love to bash politicians, it seems to me that being a politician is actually a very demanding job requiring a lot of particular skills, knowledge, and personality traits (we can tell that it's a difficult job by the fact that so few of us are happy with the performance of our politicians).  The effect of picking a government of non-politicians will be a government that largely lacks those skills and traits.  It would seem that the predictable consequence will be a government that quickly angers the populace and lands itself in new political crises that it will be poor at managing.

I cannot conceive of a large business stating of its new executive management team "None of our team have prior business experience".  Shareholders would panic and defect in droves, and rightly so.  And yet somehow this is supposed to be a way to run a country?


Hypnos said...

Italy has a long standing experience with this. We had another technocrats only government back in 1995, when the first Berlusconi government collapsed.

It lasted a year and 4 months and didn't do particularly worse than any other elected governments.


Ugo Bardi said...

Stuart, when people arrive to a certain level, they have to be politicians at heart. They may joke while maintaining that they are not. But they are.

Apart from that, it is interesting to note the parallel path that Spain and Italy are following. In Italy we have this "technocratic" government chosen by the European powers that be. In Spain, we have a right wing government chosen by the people. But these two governments will do exactly the same things.

And, curiously, in Italy people don't seem to resent the fact that a government has been forced onto them which will cut their salaries, cut down social services, etc..: Even more curiously, the Spaniards chose themselves the government that will do that to them. Ah.... the fascination of democracy!

Don said...


I guess the idea of a technocratic gov't is that it will in theory be less likely to do the "expedient" thing rather than the "right" thing. So the real question, to paraphrase Zen, is whether the "student" i.e. the populace is ready for the "teacher" to arrive or not. You are suggesting that it is not and I would agree. I believe that this is a world wide phenomenon. The failure of the super committee being one such example. IMO, these issues will not be dealt with logically i.e. requiring painful decisions, until it is very very bad or, in the context of peak oil, entirely too late.

Our civilization has been made so soft by huge energy surplus and then massive debt growth, that it appears incapable of making tough choices. Interesting how tougher choices tend to have a high correlation to correct choices. By delaying and excessive can kicking, we are being slowly squeezed into even more horrible options. Politicians are only as good as the people who elect them. If the people are weak, you will get shitty short term governance. The apparent decision to eat our seed corn is a collective one.

My main credo is that given an array of choices, the right one is almost always the most difficult one to do : )

Nick G said...

Am I correct in thinking that this government was in effect appointed by the EC?

Perhaps it has no popular support, and professional politicians were smart enough to avoid joining...

Kevthefarmer said...

Yes, being a habitual deciever yet remaining vaguely plausible is undoubtably as stressful in public life as it is to do so in ones private life. At least as a politician one is surrounded by a cadre of colleagues that all buy into the same delusion. This take-over of government by the so-called "technocrats" is probably a godsend for pollies who must be at their wits-end trying to square this particular circle. At least when it comes to the time for chopping a few heads off they might have saved themselves.
How much more cathartic for their souls to be like plucky little Iceland, come clean and go to the country with a referendum for a mandate to dump the banking sector and restructure with full reserve banking and a plan for national self-reliance. All is possible -and inevitable in the (not very) long run, why prolong the agony?

Stuki said...

The traits and skills required to become a successful politician in an untrammeled, expensive to exit, democracy, are not skills and traits that benefit those that are being ruled. Willingness to kowtow to the loudest squealing special interests, while skillfully playing one group against another, are hardly traits and skills that benefit "society" in any meaningful sense.

In a business setting, those supposedly being served by a company / business leader, have the option of going elsewhere, should he not perform. As of current, this form of voting with ones feet is extremely expensive when it comes to signaling discontent with politicians.

The strong states / weak federal government model the Founders originally put in pace for the US, went some ways towards allowing for voting with ones feet in the political arena. But then, skillful politicians quickly went about closing down this avenue for those wishing to escape their incompetence.

Don said...

It appears that I misspoke. We are not eating our seed corn, the Europeans are : )

IMO, today's Fed "coordination" is a euphemism for further US QE to the benefit of Euro banks. One can only hope it generates outrage. Surely it would be better to simply carve the shareholders out and bondholders of these banks to the extent necessary and transfer the depositors to more sound institutions. That is what we did with the Resolution Trust in the 80's. But now, it's socialize bad investments by Bank executives, bank shareholders and their bondholders. The result, rich bonuses for poor managers, investors who never have to take losses, and mountains of debt obligation combined with massive and extremely dangerous financial system leverage Why? Because everything will "collapse" if we don't? BULLSHIT!

Bernanke was well chosen. TPTB knew what they were getting. I'm not sure if the general public even now realizes how badly it is getting screwed.

Stuart Staniford said...


I don't think that's quite right ("US QE to the benefit of Euro banks"). The Fed is essentially making a dollar loan to the ECB in exchange for a Euro loan from the ECB. The ECB is on the hook to the Fed to repay it, so the only risk the Fed takes is that the ECB would cease to exist, which is probably a pretty small risk.

The ECB in turn is making short term liquidity available to Euro banks - which is a pretty standard central bank think to do and which won't help euro banks with their solvency issues one whit (but is helpful in preventing total freeze up of credit markets due to uncertainty).

Don said...


I agree, you are right, they have to pay it back. But this type of swap i.e. central bank liquidity arrangement, only came into being in late '07 (the timing being the beginning of the US meltdown).

And of course my "seed corn" metaphor was meant in jest, well, partly : )

However, the fact remains that other than John Hussman and a few others, these conversations neatly avoid the question as to why we are socializing these losses and instead focus on "providing liquidity" so the system does not seize up. But is it the right way to go about it?

Why are we allowing bank shareholders and bank bondholders completely off the hook for their stupid "investments? By providing liquidity to for Euro banks, we alleviate pressure on them to fix their problems. But that will involve pain so it isn't even discussed. This whole process i.e. moral hazard, really accelerated under Bernanke and it now seems few question the approach for fear that everything will blow up if we don't. I liken it to extortion. But there is ample historical evidence for the opposite (Resolution Trust Corp mentioned previously, Long Term Capital Mgmt another). As well, there is ample evidence that this present path does not work. Witness Japan. The ECB did not need the Fed to provide liquidity. Germany could have done it but chose not to. Perhaps because they've already been down the road to hell?

Thanks for these great posts!

Stuart Staniford said...


At some point I think some Euro banks will show up insolvent and then a decision will have to be made about who is made whole and who isn't. This is not that point.

Personally I'm of the view that it probably is de-facto necessary to make the debtholders whole because of the risk of cascading insolvency (bank A is insolvent and now bank B is insolvent too, which would have been fine but for the fact it had to write down it's loans to bank A). However, equity holders should get nothing in that scenario (and it was unconscionable that the US govt in 2008 didn't wipe out the equity holders when it had to support banks with taxpayer funds)

buck smith said...

A politicians skills are a subset of the skills needed by a sales professional and a business manager. At the national leader level is difficult to impossible in Western social democracies right now, as is being the CEO of a bankrupt company.

Unknown said...

Hi Stuart,

This sort of government composed by independents (or technocrats like media likes to call them) is relatively common procedure when an elected government looses support at Parliament in Europe. But usually this sort of government lasts just for a few months, while parties go back to the streets and a general election is held. What's different about Monti's government is that it is supposed to last to the next election in 2013, well over one year. And much to the fact that no politician is willing at this moment to go to power and either implement or fight the demented austerity recipe.

If Parliament maintains support to Monti's government for enough time, Italy should eventually apply for the huge IMF package the media has been venting. 600 G€ is about the amount of debt Italy has to roll the next 7 or 8 years. This being the case, the remaining elections this decade in Italy will become largely irrelevant.