This article is part of Next, The Globe's five-day series examining the people, places, things and ideas that will shape 2013.
Impeccably groomed, well dressed and smiling, Daniela Marzulli does not give off the air of an Italian businesswoman whose shop is in something close to distress. Sales at her natinudi (born naked) childrens clothing store in the heart of Rome's buzzy Trastevere neighbourhood dropped 20 per cent in 2012, the worst performance since it opened seven years ago.
Ms. Marzulli, who is 35 and has had stints as an actress, blames the deep Italian recession, made worse by austerity, for her customer fall-off. She notes that Italians' traditional tredicesimo – the 13th month of an annual salary – is now going to pay higher taxes, notably the real estate tax that was cynically removed by former prime minster Silvio Berlusconi and reintroduced by his replacement, Mario Monti, to help stabilize Italy's dire finances. "The thirteenth was used for Christmas shopping, now it's going to pay the IMU," she says, referring to property tax, the most dreaded acronym in Italy. "Italians are afraid to spend."
Everyone is suffering, she says. She looks at her eight-year-old son, Rocco, who is keeping her company in the small shop just before Christmas. "One in three teachers in his school is gone and they don't even have toilet paper," she says. "The parents have to bring it. There is no soap, no art supplies."
So will she vote for Mr. Berlusconi? The three-time premier, who is 76 and was first elected in 1994, has announced his intention run in the next election, expected in February. Alone among the leading candidates, he is taking a strong anti-austerity, anti-Germany stance that you would think would appeal to struggling Italians.
Forget it, she says: "Austerity is the only thing that will save us from total collapse."
She intends to vote for Pier Luigi Bersani, the leader of the centre-left Partito Democratico (Democratic Party), who has said that austerity and economic reform are here to stay. Leading in the polls, he is Italy's probable next prime minister, unless the unelected Mr. Monti – who handed in his resignation last week – relinquishes his neutrality stance and upsets Mr. Bersani's best-laid plans. While still undeclared, Mr. Monti this week said he would be willing to lead a centrist alliance of parties in the election, set for Feb. 24 and Feb. 25.
Ms. Marzulli is the typical face of Italy's new political realism. She thinks that, as painful as it is, austerity is a necessary evil that will eventually make the Italian economy more competitive after nearly two decades of slothful performance under Berlusconi governments.
Many voters in Greece, now entering its sixth year of deep recession, have a similar view. In June, they elected Antonis Samaras, leader of the conservative New Democracy party, as prime minister (though the anti-austerity parties came on strong). Mr. Samaras is keeping the austerity-for-bailout-loans commitment intact. In Germany, which goes to the polls in September, with Chancellor Angela Merkel seeking re-election, voter demands for austerity among the struggling euro zone countries is hardly fading. Ms. Merkel knows that taxpayers will continue to demand fiscal rectitude in exchange for German bailout loans.
Less than 50 metres away from Ms. Marzulli's shop, in Piazza San Cosimato, fruit and vegetable vendor Bruno Parisella, 51, has a similar view. The Italian recession and austerity have severely damaged his sales; he claims they are down by a third this year. "Before, my clients would buy three kilos of clementines, now one," he says.
But Mr. Parisella will not vote for Mr. Berlusconi in spite of his promises to lighten the taxpayers' burden. He says the austerity unleashed by the Monti government would not have been necessary had Mr. Berlusconi's economic reform programs not been so lame, so why should Mr. Berlusconi be rewarded? "He did nothing for 17 years," he says.
Mr. Parisella's one disappointment is Mr. Monti's apparent failure to apply austerity more evenly. Indeed, there is a sense among Italians that the austerity burden is falling largely on the middle class and the poor, while the politicians, bureaucrats and the wealthy suffer no fall in living standards. "For austerity to work, it has to affect everyone, not just the poor people," he says.
The Italian election is considered crucial, not only for Italy, but for all of Europe. Italy's sovereign borrowing costs have dropped considerably since the dying days of the Berlusconi government, in late 2011, when bond yields went so high that Italy was close to getting shut out of the debt markets, but the country still represents a threat to the euro zone's integrity. It is the euro zone's third-largest economy, with output 25-per-cent greater than Canada's.
With €2-trillion ($2.6-trillion) in national debt, and a debt to gross domestic product ratio of about 125 per cent, Italy is nominally Europe's most indebted country and, relatively speaking, the second-most, after Greece. Its forecast 2012 economic contraction, at 2.3 per cent, is Europe's second deepest. Manufacturing is plummeting at double-digit rates and unemployment, at 11.1 per cent nationally and 35 per cent among youth, is climbing relentlessly.
If the financial and economic data take a turn for the worse, an Italian rescue is not out of question, and would be so expensive that it would rip the euro zone apart. Look at the damage inflicted on the euro zone by tiny Greece.
Who best to save Italy from itself? The laconic Mr. Monti, 69, who is a sober-minded economics professor and former European commissioner, already has the support of Italian business, European heads of government and the Catholic church. His popularity is less high among Italian voters, in part because he is associated with deep recession and in part because he is still an unknown quantity. He has never held elected office in Italy and had been prime minister for only 13 months. He also lacks the sheer entertainment value of campaigners such as Mr. Berlusconi and Beppe Grillo, the euro-skeptic comedian and anti-corruption leader of the Five-Star movement, which placed first in the recent Sicilian elections.
The pressure is mounting on Mr. Monti to run, but there is still some chance he will not because he would lose his currency – his neutrality – and because, so far, he lacks the political machinery to propel his bid. "Nobody has suggested where and how he would actually run," says James Walston, professor of international relations at the American University of Rome. "He has no big party behind him."
While a Monti victory would go a long way to reassure investors and the euro zone's paymasters in Brussels and Berlin, there is little doubt that Mr. Berlusconi's fresh attempt to become prime minister will fail – his centre-right PdL party is sinking in the polls. Mr. Bersani could very well win and assemble a coalition that would keep austerity and economic reform intact.
That scenario would help Italy in the long term. In the short term, the pain will continue. "The next year will be even worse," says Ms. Marzulli, the childrens clothing shop owner.