Euro Leaders Demand Austerity as Italy Nears New VotePatrick Donahue
European leaders demanded that euro members press on with budget cuts to end the debt crisis as Italy edged closer to a new election after an anti-austerity vote last week resulted in political deadlock.
Finance ministers from the 17-member single-currency bloc are meeting in Brussels today to discuss issues including a bailout for Cyprus. In Rome, a top aide to Democratic Party leader Pier Luigi Bersani said another election may take place this year after passage of new electoral laws, while members of Beppe Grillo’s faction said they were considering a walkout aimed at breaking the gridlock.
“Now in Europe, after the Italian election, it seems to be a case of either austerity and savings programs or growth, but that’s a completely false premise,” German Chancellor Angela Merkel said at March 1 event. EU Economic and Monetary Affairs Commissioner Olli Rehn echoed those comments, telling Germany’s Der Spiegel magazine this weekend that there’s no scope for the bloc to let up on budget discipline.
Italian political instability, after last week’s election ended in a four-way split, threatens to reignite concern about the deepening of the debt crisis. Voters in the bloc’s third-largest economy revolted against German-inspired austerity measures, handing the party of comedian-turned-politician Beppe Grillo more than 25 percent of the vote with its anti-spending cut message and a call for a referendum on euro membership.
Senators-elect in Grillo’s party, the Five Star Movement, may consider staging a walkout during a confidence vote to allow the chamber to forge a government, according to two delegates who declined to be identified. Grillo’s movement is seeking to influence the program of Italy’s next government and would seek policy concessions in exchange for a possible walkout, the senators-elect said.
Italian 10-year bond yields climbed to a three-month high last week, jumping 34 basis points to 4.79 percent. Yields rose 7 basis points to 4.86 percent as of 4:23 p.m. in Rome.
Spanish 10-year yields and equivalent Portuguese debt were little changed at 5.09 percent and 6.3 percent respectively. Spanish bonds rallied last week along with Greek and Portuguese securities on speculation that the European Central Bank, which eased a market panic last year with a pledge to buy sovereign debt, will maintain control over the three-year-old debt crisis.
Italian President Giorgio Napolitano told political leaders March 2 to put public interest and the country’s international reputation first as Grillo reiterated that his party won’t back any government. Bersani, whose faction won the most votes, is resisting cooperation with former premier Silvio Berlusconi or Grillo’s upstart movement.
“We have 460 parliamentarians, double what the right got and triple what Grillo won,” Bersani said in an interview last night on state-owned RAI3 television’s “Che Tempo Che Fa” program. “So we will have the first word.”
Italy may hold new elections this year if Bersani and his Democratic Party fail to find enough backing in parliament to form a government, Stefano Fassina, the group’s economic policy spokesman, told Sky TG24 TV yesterday.
There are no other alternatives than to hold a new vote “in a few months” should Bersani fail to find a majority, he said. “We should name a new president, change the electoral law and then return to polls as soon as possible.”
The election showed voters rejected Prime Minister Mario Monti’s austerity policies and that a new technocratic government isn’t the answer, Fassina said. The euro area isn’t on the right path to end the debt crisis, he said.
Any “significant” attempt to unravel Monti’s reforms would risk “serious turmoil across Europe,” Holger Schmieding, chief economist at Berenberg Bank in London, said in a note today. “Our base case remains that Brussels, Frankfurt and Berlin jointly with the bond vigilantes will simply leave Italy no choice but to stay on the straight and narrow -- or at least to not go astray for very long.”
Merkel, speaking three days ago at an event held by her Christian Democratic Union in Greifswald on Germany’s Baltic coast, urged Italy not to stray from reforms, saying that her stance on deficits is “not about liking to whip people.”
Rehn, the EU’s budget enforcer, said the bloc has no leeway to depart from its course of reining in spending and debt.
“We’re not going to solve our growth problems by piling new debt on the old,” Rehn told Spiegel in an interview.
Euro ministers navigating the crisis were due to discuss issues including Cyprus, which has since June been in talks on receiving the bloc’s fifth rescue package. The ministers want to reach an agreement by next month after Cypriot voters elected Nicos Anastasiades as their new president.
Anastasiades has to revive the stalled talks as Cyprus seeks aid that could reach the size of its almost 18 billion-euro ($24 billion) economy. The negotiations have been hampered by issues such as state asset sales, the presence of Russian wealth and money-laundering allegations and the prospect of a debt writedown.
Rehn said assistance to Cyprus is crucial since a disorderly default would result in the country’s exit from the euro area. He also reiterated the European Commission’s position against a debt writedown or imposing losses on depositors in the Cypriot banks.
“I’m certain that we’ll find a solution that addresses the concerns of all euro countries,” Rehn told Spiegel.