It seems no one told the Italian PM.
Following indications from Italy and Spain that bailout requests may not be necessary, Italian Prime Minister Mario Monti has vocalised his view that disagreements within the euro-zone are damaging the future of the European Union. During an interview for Germany’s Spiegel magazine Monti stated that; ‘The tensions that have accompanied the euro zone in the past years are already showing signs of a psychological dissolution of Europe. I can only welcome the ECB’s statement that there is a ‘severe malfunctioning’ in the market for government bonds in the euro region. It’s also true that some countries have to shoulder ‘extraordinarily high’ costs to finance their debts. That’s exactly what I’ve been saying for a long time.’
Monti then appealed to European governments, asking that they act under loosened parliamentary bonds. The Spiegel magazine quoted him as saying; ‘Of course every government has to follow its parliament’s decisions. But every government also has the duty to educate the parliament’. His remarks implied that government failure in guiding parliamentary decisions could increase the risk of an EU breakup. Monti also proceeded to urge speedy action in lowering borrowing rates.
Although last week’s ECB announcement, in which it declared that intervention on their part would come with delays and weighty conditions, was a disappointment for some, markets did rally following an initial drop.
Chief Economist at JPMorgan Chase & Co, Bruce Kasman, issued a statement to clients which concluded that ECB action would occur in the not too distant future: ‘The ECB did not restart its bond purchases this week, as widely expected, but pointed to a more important and constructive shift in its approach to managing the crisis […] If the arrangement sketched out is fully implemented, the ECB will provide an effective liquidity backstop, enabling sovereigns to retain access to markets for a large portion of their funding needs.’
In the days following the ECB announcement yields on ten-year Italian bonds rose to 6.28 before ending the week at 6.01 per cent. This is still over 4.5 per cent higher than the 1.42 per cent for similarly dated German debt.
During his interview with Spiegel magazine Monti remarked that as the federal government profited from its neighbours rates Italy was in effect aiding German borrowing costs. ‘The high yields Italy has to pay right now subsidize the low ones Germany is paying. Without that risk, the yields on German government bonds would be somewhat higher.’
Monti has been criticised for his comments by some. A lawmaker representing the coalition Christian Social Union issued a statement via email in which he labelled several element’s of Monti’s comments contrary to European principles and ‘anti democratic’. According to Tagesspiegel newspaper Micheal Meister (the parliamentary deputy leader of Merkel’s Christian Democratic Union) reacted to Monti’s remarks with the assertion that there was a need for ‘not less, but more democracy in Europe.’
