German Chancellor Angela Merkel and Italian Prime Minister Mario Monti, who wrangled over bailout policy last week, promised to work together in response to Europe’s debt crisis.
Germany and Italy are “decisively committed to resolve these difficulties together,” Merkel said at a joint press conference with Monti yesterday in Rome. “These are very important talks during a time that hasn’t been easy, but a time in which we’re willing to overcome the difficulties we find ourselves in together.”
Germany is facing escalating costs tied to bailing out weaker partners in the 17-nation euro area, while Italy’s ability to refinance its debt is threatened by an increase in bond yields. The two leaders clashed at a European Union summit in Brussels last week, pushing negotiations through the night of June 28 before coming to terms on new guidelines for future rescues.
“It is an ever more frequent pleasure for me to meet Angela Merkel,” said Monti, who hosted the German leader in Rome on June 22 for a summit with French President Francois Hollande and Spanish Prime Minister Mariano Rajoy.
The meetings in Rome and Brussels softened Merkel’s opposition to conceding troubled nations more flexibility on bailout terms. In Rome two weeks ago, Merkel parried attempts by Monti, Hollande and Rajoy for an expanded mandate for the euro- region’s rescue funds. Last week in Brussels, she gave ground.
The European Stability Mechanism will be used “in a flexible and efficient manner” under eased conditions, euro- area leaders said in a June 29 statement. The tools include bond buying and direct aid payments to banks, provided the bloc establishes a central bank-oversight capacity.
“What’s important for me is that these things are done on the basis of current rules,” Merkel said yesterday. “That means that we’ve developed these instruments, that we’re committed to these instruments, and that anybody that gets in trouble -- although as Mario Monti explained, this isn’t necessary for Italy -- has access to it.”
Monti, prompted by a reporter’s question, reiterated that Italy wasn’t currently seeking aid from Europe.
Italy “isn’t making a request to use the existing mechanisms today” because of the government’s deficit cutting efforts, Monti said.
Italy’s 10-year bond yield rose 14 basis points to 5.77 percent yesterday. The yield has fallen 43 basis points since Monti, Merkel and other European leaders announced their agreement from Brussels early June 29. The yield was 4.99 percent on March 8.
Monti pushed Merkel into an agreement in Brussels by joining with Spain’s Rajoy in a threat to block a disbursement of EU funds toward growth initiatives. In an interview published in yesterday’s Frankfurter Allgemeine Zeitung, Monti said the power play was “no revolution, rather much more a classic negotiating method.”
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