By Andrew Frye and Chiara Vasarri - Aug 1, 2012 12:28 PM GMT+0400
Italy’s Prime Minister Mario Monti is making the rounds of European capitals as his country’s borrowing costs creep higher, urging leaders for collective action to back up individual expressions of support.
“We can’t allow ourselves even a moment of distraction,” Monti said to reporters yesterday in Paris after a meeting with French President Francois Hollande. Today, Monti will talk with European Union Economic and Monetary Affairs Commissioner Olli Rehn and Finland’s Prime Minister Jyrki Katainen in Helsinki before heading to Madrid tomorrow to see Spanish Prime Minister Mariano Rajoy.
Italy’s Prime Minister Mario Monti is seeking to capitalize on pledges last week from European Central Bank President Mario Draghi and German Chancellor Angela Merkel to defend the euro against speculation that sovereign defaults will tear the common currency apart. Photographer: Jock Fistick/Bloomberg
Monti’s travels this week are a real “journeys of hope for him and for the euro,” Alberto Mingardi, head of the pro-free market Bruno Leoni research center in Turin. “Monti is the only premier in the area who has the capability and the experience to play the role of mediator”.
Monti is seeking to capitalize on pledges last week from European Central Bank President Mario Draghi and German Chancellor Angela Merkel to defend the euro against speculation that sovereign defaults will tear the common currency apart. He is pushing for action as Draghi, who promised that the ECB had the power to defeat speculators, prepares to lead a meeting of the central bank’s policy makers tomorrow.
Expectations ‘Inflated’
Expectations of an intervention by the ECB have been “inflated and now if something concrete and in line with the expectations of ’we will do whatever it takes’ doesn’t arrive, markets will react very badly,” said Nicola Marinelli, who oversees $153 million at Glendevon King Asset Management in London.
Italy’s 10 year-bond yield fell 11 basis points to 5.97 percent at 9:50 a.m. in Rome. That’s still more than 1 percentage point higher than in early March and 464 basis points more than similar-maturity German debt. Spain’s 10-year bond yield fell 4 basis points to 6.73 percent, down from a euro-era high 7.75 percent on July 25.
Monti is turning to Europe as Italy’s economy sinks deeper into recession. The country’s unemployment rate rose to 10.8 percent in June, the highest since the third quarter of 1999, according to a report yesterday from the national statistics office Istat. Monti spoke with Merkel by phone on July 28 about speeding Europe’s response to the region’s debt crisis.
Bond Buying
Monti wants to strengthen Europe’s bailout capacity by pushing for the quick implementation of a June European summit agreement that would ease the purchase of distressed sovereign debt by the region’s rescue funds. He and Merkel agreed the decisions must be put in place “as quickly as possible.”
Markets are awaiting the establishment of the euro bloc’s permanent rescue fund, the European Stability Mechanism. The 500 billion-euro ($615 billion) ESM is on hold pending a decision byGermany’s Federal Constitutional Court, set for Sept. 12.
Italy might want the European rescue funds and the ECB to buy its bonds, Monti told Finnish newspaper Helsingin Sanomat in an interview today, stressing that the country doesn’t need a bailout.
“We’re thinking of a possible intervention in various combinations involving” the temporary rescue fund or EFSF, the ESM and the ECB, the Italian premier told the newspaper.
Monti has found allies in Hollande and Rajoy. In AAA-rated Finland, leaders have been more resistant to facilitating rescues. Finland, the northernmost euro member, has insisted that bailouts come with strict terms such as austerity and burden sharing.
Monti’s efforts are also being watched by U.S. policymakers. President Barack Obama called Monti yesterday to discuss the economic situation in Europe, according to a White House statement. European leaders can forestall dissolution of the euro by taking prompt, “decisive steps” to solve their debt crisis, Obama said on July 30.
To contact the reporters on this story: Andrew Frye in Rome at afrye@bloomberg.net;
Chiara Vasarri in Rome at cvasarri@bloomberg.net
To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net;
