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.
Monti said in the report, “I hope that I can help rescue Italy from financial ruin with moral support from some European friends, especially Germany.” He added, “But I say quite clearly: moral support, not financial. I emphasize: not with financial help. But they should cut some slack to those countries that are following the European guidelines precisely.” He also pointed out what he believes is a common misconception in Germany: that Italy has already received financial help from Berlin. Even though five other eurozone countries have been on the receiving end of bailouts, he said, Italy had not: “I’ve got the impression that the majority of Germans believe Italy has already received financial aid from Germany or the European Union—that’s not the case. Not a single euro.”
Monti also said that Germany was the biggest beneficiary of the existence of the eurozone, thanks to its export-oriented economy, and that Italy was subsidizing Germany. He was quoted saying, “Germany is profiting from the low interest rates it is paying for its government bonds … the high interest rates, that Italy is now having to pay, is subsidizing the low interest rates that Germany is paying.”
Monti’s warnings about anti-German feelings and an impending breakup of the eurozone were underscored by comments on Sunday by Bavaria’s finance minister, Markus Soeder, who is a senior member of Chancellor Angela Merkel’s government. Soeder predicted that Greece would depart the eurozone by year-end.
Comparing any additional financial aid for Greece to “trying to water a desert,” he was quoted saying, “According to my forecast, Greece should leave the eurozone by the end of the year. Germans can no longer be the paymaster for Greece. Every new bit of aid, every relaxation of the guidelines would be the wrong way to go.”
He added, “At some point, everyone’s got to move out of Mum’s house, and for the Greeks the time is ripe for that now.”
The rhetoric escalated throughout the weekend and on Monday Foreign Minister Guido Westerwelle of Germany admonished politicians to tone it down. He issued a statement that said in part, “The tone in the debate is extremely dangerous.”
He added, “We’ve got to take care that we don’t talk Europe to death. We can’t allow our actions to be reduced to attempts to raise political profiles domestically—and that goes for Germany too. The situation in Europe is too serious for that and there’s too much at stake.”
In part his admonishment was directed at Soeder, who, in addition to his other comments, had also said, “In this situation you have to apply the old mountain climbing rule. If someone is hanging on your rope and pulling you down into the abyss with him, you have to cut the rope. We are at that stage now. If we don’t cut the rope on which Greece is hanging in time, Germany could be in danger.”