Italy has been one of the most sluggish economies that the European Union has ever seen. With an average of 0.75% growth per year over the past 15 years, it makes Malta look like a revved-up Mini Cooper.

In addition to this very slow growth rate, Italy also has a high unemployment rate, especially in the southern regions. When one factors in a deficit of 4.6% of gross domestic product and a public debt of 120% of GDP, coupled with a Prime Minister mired in scandal after scandal, one can see why the markets were jittery.

In the end, it was political instability which forced Silvio Berlusconi out. When it was clear that he had lost his majority, Italy’s borrowing costs spiked. The markets began to quote an interest rate of 7% which was the same benchmark which forced Greece and Ireland to seek a bailout.

Once Mr Berlusconi stepped down, Italy’s President Giorgio Napolitano opened up marathon talks on Sunday to find a technocrat to put together a government to deal with the immediate crisis of implementing austerity measures. The man he chose is Mario Monti, a 68-year-old economics professor and EU Competition Commissioner. It is understood that Prof. Monti has the backing of most of Italy’s parties, including that of Mr Berlusconi. He has not been drawn into rushing Cabinet appointments and spelling out his plans, but has already begun to stoke the fires by jabbing at wounded pride.

Prof. Monti says he wants to build “a future of dignity and hope” for Italy’s children and that Italy needed to become a figure of strength in the European Union, rather than being looked upon as a perennial weakness.

While the Italians themselves might seem lukewarm to his appointment, the markets reacted positively, with Asia’s markets up by about 2% and the euro rising against the dollar. However, the litmus test will come when the Italian government auctions off its bonds. Now that an interest rate below 7% has been established for Italian government bonds, it would be safe to say that markets are beginning to show confidence in Prof. Monti’s ability to rescue Italy from the mountain of debt it’s under.

This must all be seen in the wider context of course. Greece has also installed a technocrat government which will steer it through the EU-IMF bailout process. But whether both countries can do enough to stem the tide, still remains to be seen. It is now becoming very clear that the meltdown is a regional phenomenon, largely affecting the Mediterranean countries. As we have said time and time again, it is imperative that Malta continues down the road of fiscal discipline, to safeguard all our futures.