Italy’s Prime Minister Mario Monti is pressing his European counterparts to sign on to collective action to fight the financial crisis, trying to bridge a north-south divide in the euro area for help to lower borrowing costs.
Monti, who is due in Helsinki today for talks with Finnish Prime Minister Jyrki Katainen, is seeking to capitalize on a pledge by European Central Bank chief Mario Draghi to do whatever it takes to defend the euro. Bundesbank President Jens Weidmann said the ECB shouldn’t exceed its inflation-fighting mandate, according to an article published on the German central bank’s website today.
Monti has found common cause with French President Francois Hollande and Spanish Prime Minister Mariano Rajoy on stepping up efforts to resolve the crisis. Leaders in Germany and Finland have proven less willing to commit more help.
“The question is whether the Germans and the Finns have the stomach for a much looser ECB policy that is more suited to the south, and so far we haven’t seen much appetite for that,” Jonathan Tepper, a partner at London-based investment research firm Variant Perception, said by phone. “Neither seems to want to budge.”
Italy’s 10 year-bond yield fell 12 basis points to 5.97 percent at 11:55 a.m. in Rome. That’s still more than 1 percentage point higher than in early March and 464 basis points more than similar-maturity German debt. Spain’s 10-year bond yield fell 7 basis points to 6.68 percent.
Almost three years since the crisis surfaced in Greece, Monti is leading efforts to strengthen Europe’s bailout capacity and help lower bond yields that have surged to euro-era records. President Barack Obama called Monti yesterday and “reiterated his support for decisive action to resolve the crisis,” according to a White House statement.
“We can’t allow ourselves even a moment of distraction,” Monti said to reporters yesterday in Paris after a meeting with Hollande. Today, Monti will talk with European Union Economic and Monetary Affairs Commissioner Olli Rehn as well as Finland’s prime minister and president before heading to Madrid, where he is due to meet with Rajoy tomorrow at the same time as Draghi holds his regular press briefing.
Italy might want Europe’s rescue funds and the ECB to buy its bonds, Monti told Finnish newspaper Helsingin Sanomat in an interview published today, stressing that the country doesn’t need a bailout. “We’re thinking of a possible intervention in various combinations,” involving the temporary rescue fund, the permanent European Stability Mechanism and the ECB, he said.
German lawmakers are reluctant to follow such a course. “It’s not the job of the ECB to provide state aid,” Horst Seehofer, the Bavarian prime minister who heads the Christian Social Union, sister party to Merkel’s Christian Democratic Union and one of three coalition partners, said in an interview with ZDF television on July 29. “I’m very, very skeptical.”
Markets are awaiting the establishment of the 500 billion-euro ($615 billion) ESM, which is on hold pending a decision by Germany’s Federal Constitutional Court, set for Sept. 12.
Merkel and her Cabinet ministers have ruled out any move to grant the mechanism access to ECB liquidity via a banking license, a proposal that would allow the permanent ESM to wield unlimited firepower, Economy Minister Philipp Roesler said.
“The chancellor and we have discussed it and we are united that a bank license cannot be our way,” Roesler, who is also vice chancellor, told reporters in Berlin today after he stood in for Merkel at the weekly Cabinet meeting. “Fiscal discipline and economic reforms have to be the way forward. Other ways are not suitable.”
In AAA-rated Finland, leaders too have been more resistant to facilitating rescues. Finland, the northernmost euro member, demanded collateral for Greece’s second bailout last year and has since insisted it will only contribute to Spain’s banking rescue if it gets similar security. Finland also wants rescue funds to come with strict terms such as austerity and burden sharing for bondholders.
All the same, the past month has seen some evidence of a rapprochement between northern and southern euro members, with German Finance Minister Wolfgang Schaeuble voicing his support for Spain’s austerity drive after Rajoy unveiled a fourth package of cuts since taking office in December.
Monti and Merkel are both pushing for rapid implementation of a June European summit agreement that would ease the purchase of distressed sovereign debt by the region’s rescue funds. He and Merkel agreed the decisions must be put in place “as quickly as possible” after speaking by phone on July 28.
“Monti is the only premier in the area who has the capability and the experience to play the role of mediator,” said Alberto Mingardi, head of the pro-free market Bruno Leoni research center in Turin. Monti’s travels this week are “journeys of hope for him and for the euro.”