Source Newsroom: Drexel University
Like many around the world Drexel University economist Dr. Marco Airaudo, an assistant professor in Drexel’s LeBow College of Business, is closely monitoring the developments in Italy. The resignation of Prime Minster Mario Monti and the return of Silvio Berlusconi to Italy’s political scene have caused fears of renewed euro turbulence. Airaudo is available to comment on stories related to the election, the overall political and economic developments in Italy, and their effects on global financial markets.
According to Airaudo, who has focused much of his research on Italy:
This is another call for the European Union to put more effort in creating a political union—not only a trade and monetary one—with a clear vision about the future, with similar market structures, more mobility and more competition.
Monti’s early resignation sent a clear signal to Europe and to financial markets that some of the parties that are running in the election will not pursue the long-term fiscal plans and structural reforms started under Monti.
Europe remains a bunch of countries that go along quite well culturally and appreciate each other, but when it comes to making decisions each nation is reluctant to give up local interests.
The advantage for Monti was that he was not elected and in some sense had more freedom to pursue austerity reforms and spending cuts that the European Union had been asking for and that financial investors were requiring to keep buying bonds issued by the Italian Treasury.
Although the process was slow, Monti managed to undertake key initial steps for a more “liberalized” market for goods and services. He was also able to start a major “public spending review” that focused on reducing the number of provinces in Italy from about 110 to 60.
The major reform undertaken by Monti was a substantial restructuring of the social security system (the national pension fund), which before such reform was bound to become unsustainable.
The great disadvantage was that Monti had to deal with an elected Parliament made up of lots of political parties with contrasting views on what to do and even on the needs of the reforms.
Monti achieved an important goal: he attained credibility on a national level for Italy. The country was again respected as a reliable member of the European Union. As a result, the interest rate spread went from about six percent to below three percent.
Airaudo received his bachelor’s degree in economics from the Universita' degli Studi di Torino, Facolta' di Economia Italy. He received a doctoral degree in economics from the University of Pennsylvania. He has authored numerous articles including “Interest Rate Rules, Endogenous Cycles and Chaotic Dynamics in Open Economies (with L.F. Zanna)” for the Journal of Economic Dynamics and Control,“Currency Substitution and Money Demand in Italy: an Econometric Analysis” for Rivista di Politica Economica and “Equilibrium determinacy and inflation measures for interest rate rules” for the Review of Economic Dynamics.