The voice of the people isn't something the markets seem to want to hear these days. First there was Greece, the cradle of democracy itself, where early this month, the merest mention of a referendum offering its citizens a say in a series of severe austerity measures was enough to send the markets into a tailspin. The ultimate result: the collapse of Prime Minister George Papandreou's ruling coalition, the rejection of any notion of bringing the proposal before the people, and the installation of a caretaker government under the leadership of Lucas Papademos, a former vice president of the European Central Bank and, until earlier this week, a visiting professor at Harvard.
Then came Italy. As Athens threatened to go under, Rome found itself under pressure not so much for its level of debt which though high is generally considered within the limits of sustainability as much as for the erratic behavior of its flamboyant prime minister, Silvio Berlusconi. On Monday, investors seemed to make the collective decision that he could no longer be trusted at the helm of the euro zone's third largest economy and sent Italy's cost of borrowing up towards crisis levels. By the end of the week, not only was Berlusconi finished, so was the very idea of holding a vote to replace him. The markets had spoken, and they didn't like the idea of going to the electorate. "The country needs reforms, not elections," said Herman Van Rompuy, president of the European Council on a visit to Rome Friday.
Indeed both Papandreou and Berlusconi had been respectively berated and belittled by Angela Merkel of Germany and Nicolas Sarkozy of France. It is almost as if Franco-German displeasure combined with the disapproval of the markets was enough to bring about regime-change. As in Athens, the plan in Rome is to replace the outgoing prime minister with somebody from outside the political class. Mario Monti, a neo-liberal economist and former EU commissioner who seems designed with the idea of calming the markets in mind, is expected to take over from Berlusconi after he resigns Saturday. For many in the two battle-scarred capitals, the fact that Papademos and Monti aren't directly accountable to the public isn't a problem. It's the reason they're being called in. Both countries have been tasked by the EU to attempt to restore confidence through deep cuts, sharp tax hikes and painful restructurings of the economy. The two technocrats have been tapped to lead because no politicians wants to face the electorate after doing what the markets have decreed needs to be done. "Democracy has very serious limitations." says Roberto D'Alimonte, a professor of political science at Rome's LUISS University. "It has the ability to kill itself, to self-destruct. [Bringing in a technocratic government] is not good or bad. It's necessary."
In Greece, the political class lost its credibility with the blowout over the referendum, says George Pagoulatos, a professor of European politics and economy at the Athens University of Economics and Business. Though the vast majority of the public is not eager to undergo the unpopular austerity measures, the probable consequence of not passing them abandonment by the EU and a chaotic exit from the euro is seen with even more distaste. Papademos, a respected economist untainted by the political slugfest, is thought to have the credibility and legitimacy to see the program through, allowing the two main political parties that have agreed to support him to renounce responsibility when the reforms start to pinch. "Theoretically, he has the capacity to apply policies that are politically costly," says Pagoulatos.
In essence, what a technocratic head of government allows a country's elected officials to do is disperse the cost of passing unpopular legislation. By carefully hewing to the middle of their country's political spectrums, and pulling together packages of cuts that spreads the pain as evenly as possible among all sectors of society, Papademos and Monti, neither of whom would likely ever stand for election, have a chance to pass reforms that would otherwise be impossible. "The key in Greece and Italy and everywhere else is fairness," says D'Alimonte. "And that can only be done by a government that is not responsive to a single electoral base."
Of course, neither economist will be able to push anything through if there isn't a consensus that something must be done. And the lack of direct voter buy-in heightens the risk of populist dissent down the road. But, until now, the motivation has been provided by the threat of a market meltdown and a subsequent economic collapse. In Italy, Mario Monti was greeted with applause in the Senate Friday, a day in which the country's stock exchange gained 3.68% as stability seemed to be at hand.
Yet, until the moment he's sworn in, Monti's ascension is far from a done deal, and it didn't take long after the markets had closed for the weekend for it to start to come under fire. Though Monti, a former advisor to Goldman Sachs, is heavily championed by the country's respected president, many in parliament have spent the week whispering that Berlusconi's ouster amounts to a "banker's coup." "Yesterday, in the chamber of deputies we were bitterly joking that we were going to get a Goldman Sachs government," says a parliamentarian from Berlusconi's government, who asked to remain anonymous citing political sensitivity. With less than 24 hours until Berlusconi's expected resignation, other names, closer to the outgoing prime minister, were beginning to be floated. If the markets object, the world will find out as soon as the opening bells ring on Monday.