Greece and Italy Seek a Solution From Technocrats

Greece named Lucas Papademos, a former vice president of the European Central Bank, interim prime minister of a unity government charged with preventing the country from default. In Italy, momentum was building behind Mario Monti, a former European commissioner, to replace the once-invincible Prime Minister Silvio Berlusconi as early as Monday.

The question now, in both Italy and Greece, is whether the technocrats can succeed where elected leaders failed — whether pressure from the European Union backed by the whip of the financial markets will be enough to dislodge the entrenched cultures of political patronage that experts largely blame for the slow growth and financial crises that plague both countries.

Some said there was cause for optimism. “First, the mere fact that they have been asked in such difficult circumstances means that they have a mandate,” said Iain Begg, an expert on the European monetary union at the London School of Economics. “Granted, it’s not a democratic one, but it flows from disaffection with the bickering political class.”

The conventional wisdom from European Union leaders in Brussels has been that greater political consensus in Greece and a change of leadership in Italy could help restore market confidence in the euro. But with investors increasingly viewing European sovereign debt as a toxic asset, it seems doubtful that the markets will truly calm down until both Italy and Greece do more than apply fiscal bandages and until the European Union can put more firepower in its bailout mechanisms.

On the surface, Greece and Italy seem remarkably alike. Both countries have entrenched patronage networks that predate the European Union by centuries and suffocating regulations and work rules. And both Mr. Papademos, 64, and Mr. Monti, 68, the president of Bocconi University in Milan, have close ties to European Union officials, who are taking a strong hand in managing the affairs of both countries because the fate of the euro hangs in the balance.

Both face daunting changes. In Italy, a new government will be asked to carry out labor and tax reforms and other growth-enhancing measures. It will also have to write a new electoral law.

In Greece, the government must push through unpopular wage cuts and public sector layoffs in exchange for more foreign aid, and then try to make more structural changes during its brief mandate than the country has introduced in 30 years.

But the similarities end there. Greece is effectively bankrupt and needs a steady hand to guide it. Prime Minister George A. Papandreou ran out of political capital trying to impose austerity on a restive country. Some have criticized him for failing to carry out reforms fast enough, while no party alone has wanted to bear the political cost of stepping into his shoes.

Mr. Papademos must also negotiate with the European Union and banks on the terms of a delicate voluntary write-down of Greek private debt so as to avoid a default — amid a deep recession, a credit crunch and a climate of growing social unrest.

In Italy, where the economic fundaments are far stronger than those of Greece, there is a new wind of optimism mixed with trepidation this week, as the debt crisis led to the abrupt end of the Berlusconi era.

“It’s a historic moment,” said Roberto Napoletano, the editor in chief of the business daily Il Sole 24 Ore, which has been running campaigns to alert Italians that their savings and businesses are at risk without credible leadership. “Italy has to act, but it can do it.”

Indeed, Italy pulled back from the brink on Thursday as investors gained confidence that Mr. Berlusconi would be gone by Monday, replaced by Mr. Monti, an economist with an international reputation. That impression was underscored by the sight of Mr. Monti arriving at the Quirinal Palace on Thursday, where he met for two hours with Italy’s president, Giorgio Napolitano, who is responsible for picking a new head of government.

Mr. Berlusconi himself sent Mr. Monti a telegram wishing him “fruitful work in the interests of the country,” the news agency ANSA reported.

In contrast to Greece, which resents outside interference, Italy has often looked to technocratic leaders backed by outside powers in moments of political transition. It did so in the early 1990s, after the collapse of the postwar political order, and again in the mid-1990s, when a unity government pushed through changes that helped Italy into the euro.