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August 06, 2012 at 05:04 AM
Among other things, Prime Ministers Mariano Rajoy of Spain and Mario Monti of Italy have one policy stance in common: neither is prepared to ask the European Central Bank (ECB) for aid in order for the ECB to begin buying their countries’ bonds. At least not yet.
Bloomberg reported Monday that Monti has instead urged the ECB to greater and more urgent action to quell the ongoing crisis in Europe, saying that if such action is not taken a breakup in the eurozone looms. Reuters reported that in addition, he called on Germany to give Italy moral support rather than money.
On Sunday Bank of Italy Governor Ignazio Visco and Cabinet Under Secretary Antonio Catricala said Italy did not need to ask the eurozone’s rescue funds to buy its bonds. Visco acknowledged the conditions attached to doing so and said such conditions were only realistic.
“I find it perfectly logical that a country asking for assistance to cool down its borrowing costs should accept a list of binding conditions, and I also understand that the eurozone does not want to use up its ammunition without clear guarantees,” he said in the report.
Catricala implied that it was highly unlikely Italy would ask for help before Spain. He was quoted saying, “If we were to move first, the others would consider us mad. The situation of our public finance is much better than that of many other [eurozone] countries.”
On Friday Standard & Poor’s had downgraded a number of Italian banks and expressed concern over the country’s economy. In a statement, the ratings agency said of its actions, “With Italy facing a potentially deeper and more prolonged recession than we had originally anticipated, we think Italian banks’ vulnerability to credit risk in the economy is rising.”
It added, “In this context, the combined effect of mounting problem assets and reduced coverage of loan loss reserves makes banks more vulnerable to the impact of higher credit losses, particularly in the event of deterioration in the collateral values of assets.”
Monti was quoted saying in an interview, “The tensions that have accompanied the eurozone in the past years are already showing signs of a psychological dissolution of Europe.” While it was good that the ECB was willing to tackle “severe malfunctioning” in the government bond market, he added that the problems “have to be solved quickly now so that there’s no further uncertainty about the eurozone’s ability to overcome the crisis.”
He also expressed concern over attitudes in the Roman parliament that are growing increasingly anti-euro, anti-European Union and anti-German. Germany has stood firm against boosting aid and loosening austerity conditions required for countries on the receiving end of bailouts.
