Monti in Berlin
January 12, 2012
"We did not argue, we simply had lots to discuss," Angela Merkel told assembled journalists in Berlin, who had to wait three-quarters of an hour longer than planned for the German chancellor and Italian Prime Minister Mario Monti to appear before the microphones. The duo had exchanged thoughts and ideas on the eurozone's debt problems and further reforms over an extended working lunch.
Italy is one of several countries in Europe facing severe difficulties. The third-largest economy in the eurozone has the second-highest level of debt per capita, after Greece. Still, Mario Monti, who took over as prime minister from Silvio Berlusconi barely two months ago, is going about his work with determination.
As well as structural reforms, Monti has imposed an austerity package on Italians meant to save 33 billion euros ($42 billion). For Chancellor Merkel, these measures are both important and noteworthy.
"Both the speed and the substance of these measures will strengthen Italy, improve its economic prospects," Merkel said on Wednesday. "And we have observed with great respect the speed with which these steps are being implemented."
Merkel added that she believed that the Italian government's work would therefore be rewarded.
Monti wants recognition
That last comment hinted at precisely what Monti was hoping for ahead of his trip to Berlin. Rather than dragging his feet, the prime minister came to Germany with his head held high. So much as was possible, Monti even went on the offensive in an interview with German daily Die Welt published on Tuesday. He warned of possible mass protests in Italy, against perceived drivers of EU intolerance like Germany and the European Central Bank, unless austerity efforts are seen to bear fruit.
"The problem is that despite our sacrifices, we have not got anything in return from the European Union, such as a drop in interest rates. Unfortunately, we have to say that our reform policies have not received the recognition and appreciation in Europe that they deserve," Monti told the newspaper.
On Wednesday, Monti sought to explain that he thinks like a German. The prime minister said that he wanted to imbue in Italian people some of the traits that have made the German economic model successful.
"Germany has long proved to every other European country what discipline in public spending can look like. It also shows that an economy founded on the principles of the free market offers the best opportunities for growth," Monti said after his meeting with Merkel.
Monti added that Italians had realized - more quickly than he previously expected - the importance of discipline and the markets. Rome's technocrat leader also warned, however, that it would take time for the Italian reforms to start translating into economic growth or new jobs.
But Italy is running out of time. This year over 300 billion euros in sovereign bonds will mature and have to be repaid - most likely using fresh credit. The markets remain so skeptical that investors have been demanding up to seven percent interest on any money lent to Italy. No state can afford to pay those rates for very long.
"I hope that a reduction in interest rates will become a reality on the markets," Monti said. "They were justified as long as there such mistrust against Italy. But now, they're no longer legitimate, as everyone says that our efforts have been good."
Seeking a larger EU role
For Monti, one of the problems facing Europe is the very perception that there's a problem. He said that no one need fear Italy, despite its budget difficulties.
"Germany can count on an Italy that can play a role in bringing stability to Europe," he concluded.
If Italy became somewhat isolated under Silvio Berlusconi's fading leadership, Monti seems intent on changing this. The new premier dislikes the Franco-German domination of the eurozone debt debates, and wishes to become a third major player alongside Merkel and French President Nicolas Sarkozy.
This trio plans to meet in Rome on January 20, to prepare further for the EU summit scheduled for the end of the month. The main focus is believed to be writing tougher fiscal discipline rules into European law.
"There is still work to do on this," Merkel said. "But there is a good chance that we can expect great progress or even a political conclusion to this pact at our next meeting on January 30."
The other focus at the summit, rather than austerity, is likely to be ways of kick-starting the economy.
A new focus
More growth, more jobs: These buzzwords have been rattling around Berlin ever since Nicolas Sarkozy's visit on Monday. Firstly, political leaders have publicly recognized that cuts alone cannot be a long-term solution. It's far easier for a country to pay its debts if the economy is growing. Also, since the mass protests in Greece, it has become clear that citizens are liable to react poorly when cutbacks and discipline are all that's offered to them.
European politicians are therefore trying to spread a little optimism and find more positive ways to tackle the debt problems. One part of this plan, a proposed tax on financial transactions, is billed as a way both to ask those who helped cause the financial crisis to contribute to the costs, and also to slow the frenzy of trading and speculation on the markets.
Chancellor Merkel is now seeking to quell talk that what is one of her preferred measures might be introduced in the near future, although negotiations continue on a possible EU-wide regulation.
"There is no consensus on the possibility of introducing it only in the eurozone and therefore the government cannot endorse this position," Merkel said.
Merkel has already personally endorsed a eurozone-only transaction tax, but her pro-business coalition partners, the FDP, say that all of the EU must take part.
Monti, for his part, also said that it would be better if the tax were introduced for the entire bloc, and that this was something his government would support.
Author: Sabine Kinkartz / msh
Editor: Chuck Penfold