Before being upstaged by Greece, Italy had been the “sick man of Europe” for some time before the start of the economic crisis. With sluggish growth and high public debt – now 120% of GDP, or €1.9 trillion – it was only a matter of time before Italy was to be hit hard by financial markets. To see Italy, one of the founding members of the European Community, in such dire political and economic straits is saddening.

But it is also worrying: Italy is the third largest economy in the eurozone and the seventh largest in the world. Yet the Italian government has been running a budget deficit for several years, feeding into its monumental public debt rather than bringing it under control. The situation has deteriorated to the extent that now almost one-fifth of the country’s deficit goes towards interest payments on its public debt. However, with Silvio Berlusconi out of office, it is now up to his successor, Mario Monti, to bring this spiralling debt under control. Indeed, he has been put in place to do little else besides.

Professor Monti, a 68-year-old academic turned Eurocrat, has served as President of Bocconi University and as a former European Commissioner for the Internal Market in the mid-to-late 90s and subsequently Commissioner for Competition. Both are highly important portfolios, carrying much weight in the Commission. It therefore cannot easily be said that Monti, despite being unelected, is unqualified for the job of Prime Minister of Italy. Further, Monti’s term in office is governed by a strict mandate: To restore economic order to Italy and pave the way for fresh elections when markets have quietened down. The question that everyone is asking is, will the markets and Italy’s politicians alike trust him to do this?

At the time of writing, the Prime Minister-elect had not yet passed a vote of confidence in the Italian Senate, though it was widely expected that he would. It is also expected that Monti, provided that he passed muster in the Senate last Thursday, will remain Prime Minister until spring 2013, when new elections are to be held. This arrangement has been a source of contention for the political right, who want a stopgap government and earlier elections, as well as for some left-wing movements, which label the new Italian administration as a “banker’s government”. Despite this, the Monti administration has the support of all of Italy’s political parties, with the important exception of the powerful Northern League as well as – expectedly – elements in Berlusconi’s People of Freedom (PDL) party which claims that Berlusconi was forced to step down in an undemocratic way.

In any case, it is Mr Berlusconi’s medicine that the new technocratic government has been tasked to administer: That is, the package of austerity measures and public spending cuts that were recently passed by the previous government. Monti’s appointment was intended to back up these measures with credibility, yet though his appointment was welcomed by world leaders, it has not yet helped quell the markets. The yields on 10-year Italian bonds crossed the 7% threshold last week, the same threshold that led Greece, Ireland and Portugal to turn towards the IMF.

The European Central Bank has stepped in to help already, buying Italian government bonds to help bring down yields. Still, the bank may not be able to continue doing so: Much debate surrounds the extent to which Europe’s central bank should take risks in shoring up eurozone members. UK Deputy Prime Minister Nick Clegg, has urged Germany to allow the European Central Bank to intervene in Italy for three months, which would buy Italy more time to refinance its debt. The central bank is really stuck in a Catch 22; too much intervention and politicians may not take the necessary measures but too little and Italy could go the way of Greece.

It is of course difficult to say for certain what the future holds for Italy, though it is somewhat easier to say what needs to be done. It is clear that structural reforms must be instituted in order for Italy to remain competitive. Some of Italy’s serious problems lie within its social system, which gives overly generous pensions and job security to certain sectors and, more generally, tends to favour the rights of employees over jobseekers to too great of an extent. It can only be hoped that the Monti-led government will be able to convince the Italian people of the need to adopt new austerity measures that will give Italy back its competitive edge. As of now, there have been no gains in the markets since Berlusconi’s exit, but Monti has instilled great hope in world leaders and much of the Italian leadership that Italy will get through these troubled times and become a competitive nation once again.