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Italian and French leaders find common cause
345 days ago
(AP:ROME) The Italian and French leaders agree on the importance of budgetary discipline, but say there is an urgent need to promote economic growth.
The two leaders met Thursday as Italy saw its borrowing costs on its public debt rise to worrying levels.
Italian Premier Mario Monti says the leaders share common approaches to the crisis, including the need to implement policies to promote growth. While fiscal discipline is necessary, Monti said, but it does not create jobs.
They also exchanged ideas on launching eurobonds, jointly issued bonds that would spread debt risk.
Germany opposes the bonds out of concern they will lead to fiscal laxity.
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Italy's borrowing costs jumped on Thursday, a symptom of market fears the country may follow Spain in needing foreign financial aid, as Premier Mario Monti prepared to meet France's new president, Francois Hollande, to discuss how to save the 17-nation eurozone.
Monti and Hollande both see the need for a bold move to restore confidence in the euro, such as the issuance of eurobonds _ jointly-issued European bonds that would spread debt risk across the region. But powerhouse Germany has ruled out any such moves for fear of exposing itself to new costs.
Italy paid 5.3 percent to raise (EURO)3 billion ($3.76 billion) in three-year money from financial markets, up from 3.91 percent last month and the highest level since December. The sale was fully subscribed, but the high rate underscores how investors are increasingly wary of lending to the country as it wallows in a deep recession and sees its debt pile increase.
Italy also auctioned 10-year bonds at a worryingly high rate of 6.13 percent and 15-year bonds at 6.1 percent. It sold a combined total of (EURO)1.5 billion in the two denominations, the maximum sought.
`'Italian auctions are now as nerve-wracking as Spanish ones," said sovereign debt expert Nicholas Spiro of Spiro Strategy, warning that both Spain and Italy could soon find it too expensive to raise money on financial markets if the European Central Bank does not take action to restore confidence.
Italy's overall debt is a new high of (EURO)1.948 trillion ($2.4 trillion) in April, a level requiring frequent market access to repay investors whose bonds are expiring. To lower that debt, the economy needs to become more competitive.
Spain's decision over the weekend to seek a bailout for its banks has fundamentally changed the market perception of Italy as the next most likely eurozone country to seek a bailout. Italy, which has the eurozone's third-largest economy, is under extreme pressure to speed up its reforms and implement austerity measures, while pressing European partners to come up with mechanisms to steady market confidence.
Monti's technocratic government came to power in November with broad, bipartisan support from political parties to reform the economy. However, lawmakers have in recent weeks shown signs of returning to the old Italian ways of political jockeying. Lobbies and some parties have pushed to water down some reforms.
As Italy's borrowing rates rose this week on concerns about its public finances, Monti on Wednesday urged lawmakers to agree quickly to the latest reforms to persuade investors the country is serious about making the kind of deep changes that will help it get out of recession. The economy has been largely stagnant for a decade, and slid into recession in the last quarter of 2011.
The lower house of Parliament passed a package of anti-corruption measures aimed at making Italy a more just society _ something that Monti, a former EU competition commissioner, believes will help encourage more risk-taking and enterprise-building. After being bruised on labor reforms, Monti's government attached the package to three votes of confidence on the most contentions passages, all of which easily passed lower house votes.
Despite the passage, there were many calls for changes when the Senate takes up the package _ an indication of more political gridlock.
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