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Monti Seeks German Help on Borrowing

Italy’s prime minister has pleaded for Germany and other creditor countries to do more to help lower his country’s borrowing costs, warning there would be a “powerful backlash” among voters in the euro zone’s struggling periphery if they did not.

Mario Monti
Alessia Pierdomenico | Bloomberg | Getty Images
Mario Monti

In an interview just three days after his country’s debt was downgraded two notches by Standard & Poor’s, Mario Monti said he did not dispute the vast majority of the credit rating agency’s diagnosis of Italy’s problems. But he argued the agency’s analysis supported the tack he was taking both at home and in Brussels. He singled out S&P citing “one negative” political risk factor: “European policymaking and political institutions”, not his technocratic government.

Rome would push the German government to realize it was in “its own enlightened self-interest” to lend more of its fiscal weight to lowering borrowing costs of Italy and other highly indebted governments. The single currency had brought “huge benefits …and maybe [to] Germany even more than others,” he said.

The stance could put Mr. Monti, whose appointment to replace Silvio Berlusconiwas cheered by German chancellor Angela Merkel, on a collision course with Berlin. Ms Merkel has been reluctant to take more aggressive action to lower Italy’s euro-era high borrowing costs, such as supporting commonly-backed “eurobonds” or increasing the size of the euro zone’s rescue funds.

Mr. Monti insisted insisted his government was cutting expenditure “for the good of future generations of Italians” and not at the behest of Berlin. In return for that fiscal discipline “there has to be a visible improvement somewhere else,” he said. “In a country like Italy now, the ‘somewhere else’ can only be interest rates.”

The Italian prime minister argued Germany had won Europe’s economic debate, calling Berlin’s vision of a “culture of stability” a “precious German product [that] has been marvelously exported” into other euro zone societies and policies. But he believes Europe’s north has not sufficiently acknowledged this change.

“The more these [high debt] countries show to have concretely understood the imperatives of discipline … the more Germany should feel relaxed,” Mr. Monti said in the 90-minute interview in his opulent office in central Rome. “If this strong movement towards discipline and stability is not recognized as taking place, and a certain approach to financial aspects does not gradually evolve, then there will be a powerful backlash in the countries which are being submitted to a huge effort of discipline.”

Mr. Monti said he believed commonly-backed bonds and increasing the rescue fund’s firepower could help assuage nervous bond investors, though he was careful to argue eurobonds could be “an interesting arrival point” in the future. They are fiercely opposed by many in Ms Merkel’s government.

Although many analysts believe aggressive bond buying by the European Central Bank—also resisted by Berlin—would push down Italian borrowing costs most effectively, Mr. Monti said that he, Ms Merkel and French president Nicolas Sarkozyhad agreed to “symmetrical silence” towards the ECB. But he said he believed the ECB should feel more secure to move once a new fiscal discipline treaty is agreed at an Brussels summit at the end of the month.

“An independent ECB will feel in turn more relaxed once a fiscal compact is on paper with 27 or 26 signatures,” he said. “In its autonomy, it may or may not decide to ease its monetary policy.”

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