German Chancellor Angela Merkel heaped praise on Italy for its deficit-cutting efforts after talks yesterday with Prime Minister Mario Monti who insisted its achievements had begun winning market approval.
Markets are in the process of recognising the successes
The two leaders met in the German capital in the latest shuttle diplomacy over the near three-year eurozone debt crisis as Spain lurches closer to a bailout and Greece races to secure aid to keep it in the bloc.
“The wide-ranging consolidation and reform agenda of the Italian government is impressive ... and I am personally convinced that these reform efforts will bear fruit,” Mrs Merkel told a joint press conference. However, the two leaders disagreed over proposals to grant the eurozone’s future rescue fund, the European Stability Mechanism, a banking licence to enable it to borrow funds from the European Central Bank.
Mrs Merkel said she agreed with ECB president Mario Draghi that enabling the €500 billion fund to act as a bank and therefore have unlimited firepower was “was not compatible” with European treaties.
Mr Monti said a banking licence was “conceivable” but as part of a wider package of measures and in a longer-term perspective.
He is battling to show markets that Italy, the eurozone’s third largest economy, can keep on top of its massive debt with a series of austerity moves and tax hikes, as well as lay the foundation for future growth with reforms.
“Markets are in the process of recognising the successes,” Mr Monti said, after Italy raised €9 billion at a six-month debt sale yesterday, paying sharply lower rates for the second day running owing to growing expectations of ECB intervention.
Mrs Merkel also described the successful bond auctions as “hopeful.”
Hours before arriving in Berlin, Mr Monti again ruled out his country asking for a bailout.
“After the efforts Italy has made and the results achieved, I certainly don’t want it to be subjected to a sort of intrusive supervision, like the other countries which had to ask for help to balance their budgets.
“We are not in that situation,” Mr Monti told Italy’s economic daily Il Sole 24 Ore.
Asked whether they had discussed the possibility of Italy applying for a sovereign bailout, Mrs Merkel said “nothing concrete” had been put on the table.