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(Updates with comments by Monti starting in second paragraph, markets in last. For more on euro-area debt crisis, see EXT4.)
Feb. 15 (Bloomberg) -- Italian Prime Minister Mario Monti, criticizing Germany and France, warned that rising tensions and “resentments’ in the European Union stemming from the sovereign debt crisis could lead to a breakup of the 27-nation bloc.
“This risk exists,” Monti said in a speech today at the European Parliament in Strasbourg, France. The almost two-year- old debt crisis that began in Greece “has helped bring about too many resentments and the rebirth of stereotypes” as well as “divisions between central and peripheral countries” to which “we need to decisively say no,” he said.
Monti, a former EU competition commissioner who took over from Silvio Berlusconi in November, reiterated criticism of Germany and France for first breaking EU budget-deficit rules in 2003. He called on European leaders to place greater emphasis on economic growth and democracy to help lead region out of the crisis.
“A major undermining of budgetary credibility came from the linchpin of the euro zone,” Monti said, referring to Germany and France. “There are no good guys and bad guys; we all need to feel jointly responsible.”
Italy, the euro region’s third-biggest economy and second most-indebted after Greece, wants growth to be a bigger priority in the EU alongside budget discipline, Monti said. Italy has asked the EU to more strongly develop the bloc’s single market, which offers “huge” potential for growth, he said.
“The single market is the body and soul of European integration,” Monti said, adding that a stronger European Parliament would also help bolster democracy in the union.
Collective euro bonds issued at the European level would help integrate financial markets and stabilize the region’s economy without impairing budget discipline, Monti said. Germany may be ready to review its opposition to such debt instruments, the Italian premier added.
In his three months in office, Monti has pushed through 20 billion euros ($26 billion) in spending cuts and tax hikes as well as legislation to deregulate Italy’s economy and cut red tape as he battled a surge in Italian borrowing costs that pushed yields to euro-era records. Those changes were aimed at jumpstarting Italy’s stagnant economy, which is in its fourth recession since 2001. Gross domestic product contracted 0.7 percent in the fourth quarter, data showed today.
Italy’s 10-year bond yield has shed about 135 basis points since Monti became premier on Nov. 16. The yield was 5.65 percent at 3:54 p.m. Rome time, compared with 7 percent when he took office. Demand for euro-region sovereign debt has also been helped by the European Central Bank’s unlimited three-year loans to banks in December.
--With assistance from Jonathan Stearns in Strasbourg and Chiara Vasarri and Lorenzo Totaro in Rome. Editors: Andrew Davis, Eddie Buckle
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