Monti to Enter the Ring in Fight for Italy’s Leadership

Italian Prime Minister, Mario Monti.
Thierry Charlier | AFP | Getty Images

Mario Monti will take part in Italy's elections in February, media reports said on Thursday, confirming speculation that the Italian prime minister will join a centrist group and remain in politics to lead Italy out of the debt crisis.

The Financial Times reported that Monti indicated his intention in a meeting on Wednesday with Pier Ferdinando Casini, head of the small UDC party, and Luca Cordero di Montezemolo, the head of Ferrari who has launched his own civic movement in support of the prime minister. It cited three sources close to the talks.

Italian daily La Repubblica reported on Thursday that Monti would most likely announce his plans for the country, outlined in a "road map"on Sunday morning.

Monti's unelected technocrat government came to power just over a year ago when former Prime Minister Silvio Berlusconi was forced out of office. But when Berlusconi's center-right party withdrew parliamentary support for the government earlier in December, Monti announced he would step down, paving the way for early elections. That decision alarmed many investors, who had welcomed Monti's arrival a year ago. His commitment to fiscal and structural reforms calmed financial markets this year and helped to lower Italy's alarmingly high borrowing costs.

However, Italy's debt is still the second-highest in the European Union at 120 percent of GDP (gross domestic product). Economic output has fallen for five consecutive quarters and growth remains elusive.

Monti's centrists would face Berlusconi's conservative"People of Freedom" party as well as Pier Luigi Bersani's center-left Democratic Party. Bersani told CNBC in an interview last week that he would continue to implement the reforms started by Monti.

Read More: Bersani to Italy, Markets: I Get It on Reforms

While it is unlikely Monti will win a majority and wield thesame kind of power again, he could upset his rivals by offering voters analternative. The move will also be welcomed by other European leaders, who have been keen to see Monti run for election.

"Monti taking power was important – suddenly there was an Italian politician that European leaders felt they could work with," Ben May,European Economist at Capital Economics said.

He warned however that Monti's achievements in Italy had been talked up to a certain extent – both by his government and by other European leaders who are acutely aware that Italy is "too big to fail".

"It is too early to say that what Monti has done will have a radical effect on the Italian economy," May said. But "Italy is such a big economy that it would be unwise to talk down its prospects. That could have a big impact on the markets."

Monti was forced to postpone a press conference on Italy's 2013 budget initially set for Friday after members of Berlusconi's conservatives delayed their approval of the plan. He is not expected to make an announcement on his future in politics before the budget deal is approved.