Saturday, February 11, 2012

Monti's US visit had a dual purpose

This week, while the focus was on Greece, another important story was developing. It was Mario Monti's visit to the US. Monti was paraded on CNBC, interviewed by the NY Times, and had a meeting with President Obama. In addition our friends at La Stampa interviewed Obama before the meeting and plastered the story on the front page. Italy is making amazing progress, etc.

But if this were just a diplomatic mission, why such a big stopover in New York and all the media parade? Just a PR event? Hardly. What the mainstream media failed to mention is that Monti had a delegation with him from the Italian Department of Treasury. That group was certainly not in the US to make friends with the Obama Administration. In fact the group quietly held meetings with a number of financiers and hedge fund investors including John Paulson. The meetings were hosted by Goldman Sachs. These discussions were flying under the radar, while Monti and Greece were in the spotlight.

What were the meetings about? The answer has to do with the infrastructure projects Monti needs to fund in order to stimulate the Italian economy. The government already allocated some $7bn for these, but they need more. Imagine an economy headed into a deep recession and the government is absolutely powerless to stimulate it. The US recession was met with unprecedented stimulus from the Fed and an $800bn of direct stimulus from the Obama administration (plus other more indirect stimulus). Monti can not do either because the Italian central bank has no control over the monetary policy and the central government has no way of financing stimulus due to debt constraints. Meanwhile credit conditions are extremely tight and the recession could become severe quickly.

Monti knows he needs private financing for his infrastructure projects - the only way he can quickly add some stimulus to the economy. These projects will include high speed rail, highways, and even water barriers to protect Venice from further flooding. Most such projects will be able to generate some sort of revenue in the future (similar to toll roads in the US). That means they could be privately financed, with the revenue used to securitize the debt and fund interest payments. Ideally he wants to accomplish this without too much media attention to avoid looking as though Italy is piling on more debt.

Monti is not a politician - he is extremely bright and a highly skilled economist. His agenda for the US visit had a dual purpose. He wanted to meet Obama and project Italy's progress with its fiscal problem to the media (see video below). But even more importantly he must find financing for the infrastructure projects that Italy desperately needs as the Eurozone enters a deep recession.
Related Posts Plugin for WordPress, Blogger...
Bookmark this post:
Share on StockTwits