(Updates with bonds in sixth paragraph, comments by Juppe in eighth. For more on the sovereign-debt crisis, see EXT4.)
Nov. 24 (Bloomberg) -- Italian Prime Minister Mario Monti may press German Chancellor Angela Merkel and French President Nicolas Sarkozy to ease euro-area budget goals and assist growth as Europe’s economy comes to a standstill.
Monti, whose non-elected government was sworn in last week, said he’s been asked to bring “new ideas” to today’s talks over lunch in Strasbourg, France, which will be followed by a news conference scheduled for 2 p.m. Paris time. Monti, a former European commissioner, has pledged to pair economic growth with fiscal rigor to shield the region’s second-most indebted nation after Greece from the financial crisis.
“There’s no contradiction between rigor and growth pursued through structural reforms,” Monti said on Nov. 22 after talks in Brussels with European Commission President Jose Barroso and EU President Herman Van Rompuy. “Budgetary sustainability actually needs to be supported by greater economic growth.”
Monti’s inclusion in today’s talks marks a turnaround after Silvio Berlusconi, his predecessor, was rarely invited to join meetings of the leaders of Europe’s two biggest economies. The gathering comes as Germany and France clash over the role of the European Central Bank in backstopping debt from Italy and other distressed euro nations.
“France wants to bring its support to Mario Monti,” French Budget Minister Valerie Pecresse said in Paris yesterday as she called on the ECB to play a “full role” in supporting the euro region. The talks “are an occasion to reinforce the economic convergence and cooperation between the three major economies of the euro zone.”
The crisis that began more than two years ago in Greece is now closing in on France, whose 10-year bond yield fell six basis points to 3.63 percent at 11:33 a.m. in Rome, 144 basis points more than what Germany pays. It also rattled Germany, which yesterday failed to sell all the debt on auction. Italy’s 10-year yield was at 7 percent, the same level that prompted Greece, Ireland and Portugal to seek bailouts.
The ECB has been buying Italian and Spanish debt since Aug. 8 in a bid to stem surging yields. Merkel’s finance spokesman, Michael Meister, said Nov. 22 that the Frankfurt-based institute can’t be the “bazooka” to provide a solution to the crisis.
The ECB question is “urgent, it’s being discussed every day,” French Foreign Minister Alain Juppe said in an interview on France Inter radio. “It will be discussed in Strasbourg today by the new Italian premier, Merkel and Sarkozy.”
The three-way talks may provide the first steps toward greater economic coordination among the 17 nations that share the euro. Barroso yesterday proposed stronger powers for the commission, including the right to screen national budgets earlier and monitor more closely nations such as Italy where rising borrowing costs threaten financial stability.
“The eventual outcome is a fiscal union in Europe led by Germany” on the condition distressed economies give up their “fiscal autonomy,” Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co. in New York, said yesterday on “Bloomberg Surveillance” radio with Tom Keene. “We’ll see the first signs of it” in today’s talks as “this is the dance that’s moving toward eventual German-led fiscal union.”
Monti, who took office after Berlusconi’s majority eroded amid plummeting investor confidence, said Nov. 22 he remains committed to Italy’s goal of a balanced budget in 2013. Still, Monti said he discussed with Barroso the need “to take into account the cycle in quantifying public-finance targets.”
Italy’s growth, burdened by debt of about 120 percent of gross domestic product, will slow to 0.1 percent next year from 0.5 percent in 2011, and the nation will miss its zero-deficit target in 2013 with a gap of 1.2 percent of economic output, the European Commission forecast on Nov. 10.
With Europe’s economy stalling, Monti will press Merkel and Sarkozy to ease euro nations’ deficit-reduction targets, Italian newspapers including la Repubblica said yesterday. The new premier will also argue for decoupling public spending on investments aimed at boosting growth from deficit calculations, Repubblica said.
Monti’s administration will first focus on implementing austerity measures passed under Berlusconi that aim to balance the budget in 2013, he told the Senate on Nov. 17. It will then take additional steps that may include reinstating property taxes, overhauling the tax system and pension rules, trimming the government’s size and modifying labor laws, Monti said.
Monti, who said the EU’s economic demands on Italy are an “opportunity” and not a “constraint,” will host Olli Rehn, the EU’s economic and monetary affairs commissioner, for talks in Rome tomorrow. The Berlusconi government earlier this month agreed to have Italian finances monitored by both the EU and the International Monetary Fund.
“Everybody knows what Italy has to do,” German Finance Minister Wolfgang Schaeuble said at a forum in Berlin on Nov. 22. “It has to reduce its debt, but even more important, Italy finally has to do structural reforms” to boost competitiveness.
--With assistance from Tony Czuczka in Berlin and Gregory Viscusi and Helene Fouquet in Paris. Editors: James Hertling, Leon Mangasarian
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