Economic Reforms and Political Risk in Italy

Italian President Giorgio Napolitano on Sept. 18 rebutted former Italian Prime Minister Silvio Berlusconi's comments that the European Union's fiscal compact — the document that Germany designed to ensure fiscal discipline in the eurozone — will undermine Italy's economic growth. The comments come six months before Italian Prime Minister Mario Monti's technocratic government is set to finish its term, and Italy's political parties are in full campaign mode.

Most of the parties with chances of forming a government are promising to roll back some of the reforms Monti implemented in line with the EU fiscal compact. Consequently, the next Italian government will face the challenge of generating economic growth and reducing social tensions without causing alarm in the markets and creating tension with the European Union.