Bloomberg News

Italy’s Grilli Says No Euro Bonds Without Fiscal Union

June 05, 2012

Italian Deputy Finance Minister Vittorio Grilli said the joint sale of euro bonds can’t happen until the 17 countries sharing the single currency form a fiscal union with a common budget.

“Euro bonds are the end of the process,” Grilli said today in an interview with Bloomberg Television’s Francine Lacqua in Istanbul. “We have to decide what kind of common budget we have, and that common budget is there to back and guarantee euro bonds. You can’t start with euro bonds if we don’t have that part.”

The debate over debt sharing has exposed differences among the leaders of Europe’s biggest countries as they try to devise a common strategy to reduce borrowing costs. Chancellor Angela Merkel said on June 3 that “under no circumstances” would she agree to have Germany back euro bonds, while French President Francois Hollande and Italian Prime Minister Mario Monti have embraced the possibility of common debt.

Monti is seeking to help broker a common strategy by hosting a meeting in Rome with Merkel, Hollande and Spanish Prime Minister Mariano Rajoy on June 22. Italy’s debt load, the euro region’s second-biggest after Greece, is set to exceed 123 percent of gross domestic product this year.

‘Second Class’

The head of Italy’s debt-management agency said it would take at least 18 months to introduce joint euro bonds for the currency area and that previously sold debt by member states would risk becoming “second class.”

“That’s one of the problems of a transition,” Maria Cannata said in an interview today on Sky TG24, when asked if national debt sold before the introduction of euro bonds would face the risk of a depreciation.

Italy can sustain 10-year borrowing costs as high as 8 percent, Cannata said, adding that buyers of German bunds will probably see losses when that nation’s record-low yields rise after Europe’s debt crisis eases.

Italian bonds fell last week, pushing the 10-year yield to 6.01 percent, the highest since January. That yield closed at 5.64 percent today, pushing the difference with equivalent- maturity German bunds to 444 basis points.

Market ‘Fragility’

“We are not concerned as far as sustainability is concerned,” Grilli said of Italy’s debt. “Of course we are concerned more generally about fragility of the market and a large debtor like Italy has to be very interested in a calming down of the market.”

Monti is seeking common ground on tackling the debt crisis with fellow leaders in Europe as politicians in Greece demand new policies to promote growth amid a fifth year of recession. Greeks, who choose a new government on June 17, are bridling against austerity steps required as part of 240 billion euros ($300 billion) in international bailouts negotiated since 2010.

“We think Greece will stay in the euro,” Grilli said. “When you are part of any government or financial institution, you have to consider all possible contingencies, even the most unlikely.”

To contact the reporters on this story: Andrew Frye in Rome at; Francine Lacqua in London at

To contact the editor responsible for this story: James Hertling at

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