Bloomberg News

Monti Says ECB Conditions, IMF Role Hinder Bond Requests

September 28, 2012

Italian Prime Minister Mario Monti

Italian Prime Minister Mario Monti speaks during a Bloomberg Television interview in New York. Photographer: Peter Foley/Bloomberg

The European Central Bank should not impose extra economic conditions on nations using its bond- buying mechanism, and the International Monetary Fund shouldn’t have an oversight role, said Italian Prime Minister Mario Monti.

Countries such as Italy and Spain are reluctant to request the bond buying they championed because of uncertainty about what conditions the central bank would seek to impose, he said. The program is only available to countries that are already taming public finances and conditions should not go beyond European Union recommendations made in June, Monti said.

Oversight should be limited to establishing “checks so the countries continue to behave in that positive way,” Monti said in an interview with Erik Schatzker on Bloomberg Television yesterday in New York. “If this is the conditionality that will be finally delivered, should a country be in a market situation suggesting its use, there would be nothing dishonorable.”

The yield on Italy’s benchmark 10-year bond has fallen more than 120 basis points since Aug. 2 when ECB President Mario Draghi first said the bank was prepared to act in tandem with the EU to attack high borrowing costs by buying bonds of distressed euro-area nations. The rally eased after Sept. 6 when Draghi released details of the plan and said the bank would impose strict conditionality and seek IMF participation in overseeing the plan.

Define Conditions

Monti said “it’s not necessary” for the IMF to be involved, and the ECB and the EU need to move quickly to define the conditions that recipient nations should expect.

“I believe that should be really kept to a minimum, because there is no reason to delay something that was already rather well defined in June by the European Council,” he said.

Spain’s 10-year bond yield is hovering near 6 percent and the government announced yesterday a fifth austerity package that may be a move to head off tougher conditions demanded as part of a bond-buying program. Monti said that he didn’t know whether Spain making a request for international aid would help bring down Italian yields or make the country more vulnerable. “We are in unchartered territory,” he said.

The terms and conditions of the joint ECB-EU bond buying plan will likely be “at the very top of the agenda” when European leaders meet in Brussels on Oct. 18-19, said Michael Derks, chief strategist at FxPro Group Ltd. in London.

“It’s going to be fiercely debated,” Derks said. “We can expect that this next summit will not go well at all.”

Declaring Victory

Monti is coming under pressure from within his own coalition as the country prepares for elections. The premier, whose diplomacy at the June 28 European summit in Brussels helped set the groundwork for the ECB program, had his crisis- fighting leadership questioned yesterday by Former Italian Prime Minister Silvio Berlusconi.

“Monti went to Brussels, and he returned telling all the newspapers he won,” Berlusconi said, citing an agreement among EU leaders to expand their use of the European Stability Mechanism rescue fund. “But the fund’s capital is only 500 billion euros” ($650 billion), which is “nothing compared with the size of the public debt in Europe.”

Under Draghi’s bond-buying plan, the ECB will put its resources next to the ESM’s funds.

Draghi’s Plan

Italian yields have fallen about 200 basis points since Monti was appointed to lead a government of non-politicians after the resignation of Berlusconi in November. In less than a year he has overhauled the pension system, revamped labor markets, cracked down on tax evasion and implemented 20 billion euros of austerity measures that pushed Italy deeper into its fourth recession since 2001. The cuts have left the country on track to bring its deficit within the EU limit this year.

The premier is rushing to implement those reforms before the elections, due by April. Monti said he won’t run as he has already been appointed as a lifetime senator, and he has no political plans. He still left the door open to second term.

“All I am saying is, I will be a senator -- should there be any special circumstance where the political forces would believe that there might be a need for my service, I would consider it,” Monti said.

Public Support

Monti’s approval rating rose 1 percentage point to 52 percent of voters this month, according to a Sept. 17 poll by IPR Marketing. That compares with a low of 46 percent in June and a high of 59 percent in February. An eventual second Monti term was backed by 81 percent of investors and business leaders, including at least 40 chief executive officers, who took part in a Sole 24 Ore Radiocor survey this month.

“It would be a step forward for the country,” Fiat SpA (F) Chief Executive Officer Sergio Marchionne said to reporters in Paris today. “It would add credibility and remove uncertainty. There are no alternatives, given his abilities.”

Monti didn’t think a second term would be likely.

“I am very confident that elections would bring about a political majority large enough with a political leader that can govern the country,” he said.

Italy’s two biggest political parties, which agreed in November to support Monti’s administration, are resuming their rivalry as campaigning begins. The Democratic Party, led by Pier Luigi Bersani, and Berlusconi’s People of Liberty party are vying to win enough votes to form a government.

“The rigor and credibility Monti provided can’t be turned back on,” Bersani said yesterday.

To contact the reporters on this story: Andrew Davis in Rome at abdavis@bloomberg.net; Andrew Frye in Rome at afrye@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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