Stocks rose modestly today (Thursday) on hopes for a new government in Italy — yes, a new government in Italy. They need one because the country is mired in slow growth and too much debt. Sound familiar?
Bulls are hoping that Mario Monti becomes the Italian prime minister this weekend and lead a government of national unity, which will pass much needed reforms. The alternative is months of uncertainty.
The big worry is that parties opposed to austerity reforms (like Berlusconi's coalition partner, the Northern League) will reject a national unity party and instead call for snap elections. That could take months and would definitely slow down progress on reforms.
Another big worry: Berlusconi tries to hold onto power, either by staying or appointing an obvious beard.
What will this austerity package include? Presumably, raisingthe retirement age to 67 (hopefully sooner than 2026, as was discussed), tax hikes, and sale of some state assets. It's not enough. More needs to be done.
Speaking of needing to do something: how about reforming the entire electoral process in Italy? Have you noticed there are over a dozen parties? Have you noticed that the governments in Italy never last very long, that the coalitions tend to be unstable? The system itself is unstable.
The big problem: you need a really strong leader in Italy, or the reform process will fall apart. You need...uh, a Berlusconi. But a reformer Berlusconi. See why so many are pessimistic about reform?
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