Italian Leaders Press for German Action to Fight Crisis
Italy’s prime minister and central bank chief pressed Germany to back more aggressive efforts to snuff out the escalating debt crisis, setting up a south-north showdown over how to stabilize the 17-nation euro economy.
Warning that six decades of European integration are at stake, Italian Prime Minister Mario Monti called on German Chancellor Angela Merkel to take steps to halt the financial rot before a backlash builds against budget cuts. Monti and Bank of Italy Governor Ignazio Visco pushed Germany to give up its opposition to direct euro-area aid for hard-hit banks.
“Countries that are at the core of the system and which have had the huge merit of instilling the culture of stability to the European Union in the first place, most notably Germany, should really reflect deeply but quickly,” Monti said by video link to an European Union conference in Brussels today. “Europe should really accelerate the efforts, as the European Commission is doing, in order to limit the contagion.”
With the euro close to a two-year low and investors hoarding German assets to stave off losses, Merkel found herself on the defensive amid evidence that her budget-cutting prescriptions have failed to set Europe on a path out of the crisis.
The chancellor, asked about proposals on bank aid made by the European Commission yesterday, said there were no “taboos on thinking” as Europe pushes for closer integration. Policy makers can probably “make it clearer to the international financial markets” what steps the EU has taken to fend off instability in the banking sector, she told reporters in the Baltic Sea port of Stralsund today.
Merkel lost her chief crisis-fighting ally this month when French President Nicolas Sarkozy was defeated by Francois Hollande, a Socialist who challenged the pro-austerity doctrine and called for a more activist central bank.
Monti joined Hollande in cornering Merkel in a conference call yesterday with U.S. President Barack Obama, who has criticized Europe for failing to get to grips with the crisis. The four-way call addressed “developments in Europe,” the White House said in a statement.
Financial markets have been jolted by concerns that Greece will shred the terms of its bailout and that Spain will be swamped by bank failures, resulting in a plunge in the euro and investors relinquishing returns for security, sending the yield on German two-year notes to zero yesterday.
Italy’s extra 10-year borrowing costs over German levels reached 466 basis points, the highest since January. Monti said Italy is being punished for mistakes made elsewhere, while acknowledging that Italy is handicapped by debt at 123.5 percent of gross domestic product in 2011.
Monti and Visco pushed Germany to back a proposal made yesterday by the Brussels-based commission, the EU’s executive branch, to allow the euro-area’s bailout fund to channel aid directly to banks.
Germany, Europe’s dominant economy, is spearheading resistance to direct financing for lenders because that would let governments bypass the conditions set for full aid programs, such as deeper budget cuts and more European intrusion into economic management.
Speaking in Rome, Visco evoked “the possibility of intervening promptly in the securities markets and directly in favor of banks, with procedures that are more flexible and less penalizing for the beneficiary countries that respect the rules.”
The central bank now has 212 billion euros of peripheral countries’ bonds on its books. It put the program, designed to smooth the “transmission” of its interest-rate policy, on hold in March.
Monti, a former economics professor who fought against Italy’s culture of spending and inflation in the 1980s and spent a decade at the commission in Brussels, said “maybe I’m too German” in matters of economic and budget policy.
That credo and the imposition of budget cuts that will put Italy in structural surplus next year give the non-partisan Monti -- heading a technocratic government that will expire in 2013 -- leverage in dealing with the Germans.
“Their own best product for export which we are very grateful to the Germans for having invented and promoted -- the culture of stability -- risks being undermined because of lack of promptness in setting up the necessary instruments to limit the contagion,” Monti said.
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