Prodi Says Europe Hurt by Too Much Austerity Amid Very High EuroIndira A.R. Lakshmanan and Kasia Klimasinska
Former Italian Prime Minister Romano Prodi said fiscal austerity measures in Europe have been excessive and called the euro too high.
“The euro has a very high rate of exchange,” Prodi, a former European Commission president, said in an interview with Sara Eisen airing on Bloomberg Television today. “I do think that it’s stronger than needed.”
The currency shared by 17 European nations is about 14 percent overvalued relative to the U.S. dollar, based on differences in consumer purchasing power, according to data compiled by Bloomberg. The euro bought $1.3004 late yesterday in New York, about 6.4 percent higher than its average since 2000.
Prodi has been mentioned as a possible candidate to replace President Giorgio Napolitano when his term expires in May. In a separate interview with Bloomberg News in Washington yesterday, Prodi dismissed speculation that he may be Italy’s next president, saying he had alienated fellow politicians over the years with his strong positions.
In Italy, where the president is elected by parliament, Prodi said the person chosen is not the one who wins the most votes, but rather the person who elicits the fewest vetoes.
“I have always been -- let’s say -- very strong-minded in my political opinion, I always take positions,” Prodi said. “I think that is not a concrete probability that the majority will vote for me.”
Prodi spoke ahead of a two-day Brussels summit of officials who may endorse plans for “structural” assessments of national budgets, according to a draft statement, using code for granting countries such as France, Spain and Portugal extra time to bring down deficits.
Following the inconclusive popular vote on Feb. 24-25 for members of parliament, in which no party won a majority in the two houses, Italy’s new lawmakers are scheduled to meet for the first time today to begin electing leaders of both chambers. Party leaders will seek to build a majority and form a government.
Investors have pushed up the country’s bond yields on concern that political gridlock will undermine the economic reforms of the outgoing government of Prime Minister Mario Monti. Italy’s 10-year bond yield has jumped almost 20 basis points since the vote to 4.638 percent.
As the developed nations around the world look for means to revive the economic growth, finance ministers and central bankers from the Group of 20 pledged not to target exchange rates to increase their competitiveness and boost exports.
The euro-area economy will shrink in back-to-back years for the first time, driving unemployment higher as governments, consumers and companies curb spending, the European Commission said on Feb. 22.
Gross domestic product in the 17-nation region will fall 0.3 percent this year, compared with a November prediction of 0.1 percent growth. Unemployment will climb to 12.2 percent, up from the previous estimate of 11.8 percent and 11.4 percent last year.
“The austerity was, in my opinion, necessary in the beginning, it worked for a while, now it’s gone too far,” Prodi said.
Italy, the euro region’s third-biggest economy, shrank 2.4 percent last year as the country’s budget deficit narrowed to match the European Union limit of 3 percent.
Despite the current gridlock and failure to form a new government, Prodi expressed confidence that economic measures undertaken by Monti will survive the gridlock. “I don’t think there will be any repeal of the Monti reforms,” he said.
Prodi has been in the news lately after a former senator who backed his previous government told prosecutors that he had accepted 3 million euros ($3.9 million) from former Prime Minister Silvio Berlusconi to switch sides and help bring down Prodi, whose government fell in 2008.
Asked about the investigation of Berlusconi for corruption, Prodi said if true, it would be “one of the biggest scandals” imaginable in Italian politics.
“Now it is in the hands of the judge,” Prodi said. If the allegations are proven true, “bribery is one of the most serious violations of democratic life. To pay a member of parliament to change their vote is one of the biggest scandals, so I am just awaiting the decision of the judge.”