Monti Under Pressure to Renounce Bailout
“We can do it alone” is the latest rallying cry to be heard in Italy as economists and politicians shower Mario Monti with proposals to use the country’s own vast but often dormant resources to slash its debt mountain rather than become hostage to the perceived diktat of Germany and Brussels.
Initiatives range from the patriotically modest to politically opportunist. But they add up to a crescendo of protests that the prime minister will find hard to ignore as he considers giving up sovereignty in exchange for the uncertain outcome of intervention to prop up Italy’s debt by euro zone bailout funds and the European Central Bank .
The latest proposal was registered in parliament on Tuesday by two center-left MPs — Giulio Santagata and Giacomo Portas — who believe Italians can be persuaded out of the national good to pay some of their taxes in advance.
“Before we end up like the Greeks we want to show we are able to save ourselves,” Santagata, a former minister and convinced European, told the Financial Times.
While he recognizes that this measure alone would not solve Italy’s debt problem nor is likely to become law, he is hopeful that it will spur the government into action.
Far more radical is a proposal by the center-right party of former prime minister Silvio Berlusconi that is shaping up into a major campaign platform ahead of elections due early next year. It will be presented to Monti on Wednesday.
Renato Brunetta, an aspiring finance minister who is working on the initiative, says it would aim to slash Italy’s 2 trillion euros of debt by some 400 billion euros over the next five years. Speaking to the FT, he declined to reveal details but confirmed it centered on setting up a Triple A-rated private fund that would use non-strategic public assets allocated by the government as backing to issue bonds.
“We can do it on our own; Italy is a rich country, with a high savings propensity,” Brunetta said.
Savings on debt interest payments, currently amounting to a crippling 80 billion euros a year, would be used to cut taxes and break the vicious cycle of austerity and recession .
Mario Monti telephoned Silvio Berlusconi on Tuesday to apologize after causing a political storm by suggesting that the yield gap between Italian and German bonds would be 1,200 basis points rather than around 450 at present if his predecessor were still in office.
Supporters of Berlusconi, who resigned in November, staged a walkout in the senate in protest against the remarks made in an interview with the Wall Street Journal, reminding Monti they had the numbers to bring his government down. Monti said in a statement he was sorry that “a banal and theoretical trend extrapolation of the values of the spread, which was contained in a broader discussion with the WSJ, was received as a political statement”.
Italy’s year-old double-dip recession extended into the second quarter of 2012, according to official statistics released on Tuesday. Gross domestic product fell 0.7 per cent quarter on quarter in the three months to June, worse than consensus forecasts, and was 2.5 per cent lower than a year earlier. Contractions were registered across the board in industry, services and agriculture.
Not for the first time Berlusconi is using promises of tax cuts to woo voters while his center-left rivals pledge to impose a new wealth tax.
Berlusconi is also intent on stirring up latent but rising anti-German sentiment in Italy — not so easy in the north where a dynamic economy is heavily dependent on Germany’s locomotive, but an easy siren call in the south which resembles Greece in its reliance on public sector spending.
“We are in war even if we do not hear the sounds of bombs,” commented Angelino Alfano, secretary of the center-right People of Liberty, attacking Germany’s “excessive rigidity” and opposition to using the European Central Bank as a true central bank. Last week a Milan newspaper owned by the Berlusconi family criticized chancellor Angela Merkel as leader of the “Fourth Reich”.
A more moderate and stop-gap approach has come from Francesco Giavazzi, a Bocconi university professor.
Arguing that a request for a conditional bailout would be an unacceptable loss of sovereignty made by an (unelected) technical government ahead of elections, Giavazzi proposes that Italy stop auctioning medium and long-term bonds, totaling about 100 billion euros, until the vote next spring.
Instead the Cassa Depositi e Prestiti, a state-financing agency controlled by the Treasury and managing some 220 billion euros in postal savings deposits, could use its banking license to secure loans from the ECB to buy Italian debt.
Eliminating a financial tax on bond interest payments would also encourage domestic investors to buy more, argues Giavazzi. He is backed by senior bankers who believe that in the long-run Italy, the world’s third largest bond market, could become like Japan where the bulk of sovereign debt is held by domestic investors.
So far government officials have reacted coolly to the welter of proposals, indicating that Monti will stick to his “steady as it goes” approach involving spending cuts, high taxes and only modest asset sales. Monti will only say that he has not decided yet whether to ask for euro zone help. But pressure is clearly mounting on Monti to demonstrate the political courage to put Italy back on its feet — without external help.