Italian Prime Minister Mario Monti said new European Union rules forcing governments with excessive debt to reduce it to within an acceptable level have “elements of flexibility” that may make the regime less of a burden.
The rule forces countries with debt over the EU limit of 60 percent of gross domestic product to cut the excess by 1/20th a year.
The new measures will be phased in over three years, meaning Italian debt won’t be gauged by the 1/20th standard until approximately 2015. The rules, which were adopted unanimously by EU countries, are a “burdensome constraint,” Monti said in testimony in the Italian Senate today in Rome.
They also contain language “respecting temporary guarantees and elements of flexibility that Italy’s previous government had lobbied to be taken into account,” he said.
Monti, who has been in power since November, said his government’s position on the rule was in “absolute continuity” with the previous government of former Prime Minister Silvio Berlusconi.
Berlusconi and his finance minister, Giulio Tremonti, had pushed the EU to accept a broader definition of debt to include private debt levels, which in Italy are among the EU’s lowest. That would reduce Italy’s total debt level and make the rule less onerous.
Monti said there are signs the debt turmoil is easing and the “contours of a way out from the euro crisis are starting to take shape.” He encouraged EU policy makers to shift their focus to promoting economic growth and not just fiscal rigor and said that Germany has a “particular” role in lending more support to the countries that have been imposing austerity measures. He said that didn’t mean that Germany should put up more money.
“When in parallel with the deep sacrifices we are asking of our citizens, the government asks that Europe gives us some sign of recognition, that doesn’t mean we are asking for money from Germany,” Monti said at a later appearance in the Chamber of Deputies in Rome. “We are asking that the governance of the euro zone evolves in a way that leads to a reduction in interest rates.”
The yield on Italy’s 10-year bond closed above the 7 percent threshold that led Greece, Ireland and Portugal to request bailouts as recently as Jan. 10. The yield rose 6 basis points to 6.23 percent today, increasing the premium over similar maturity German bunds to 423 basis points.