Market reactions to Italian austerity measures frustrate Mario Monti
Italian PM visits Finland Tuesday
The office, adorned with valuable works of art and a magnificent chandelier, also has a desk covered with piles of folders.
Italian Prime Minister Mario Monti finds the right papers in the piles and is ready for the interview.
He is about two hours late, as it appeared that complications were emerging in efforts to pass measures for spending discipline in the Italian parliament. Now the matter has been taken care of, and there is time to concentrate on the upcoming visit to Finland.
On Wednesday, Monti is in Helsinki on a visit hosted by Prime Minister Jyrki Katainen (Nat. Coalition Party).
Monti will also meet with President Sauli Niinistö, as well as representatives of the Finnish Parliament, and he will have an unofficial meeting with Olli Rehn, the European Commissioner for Economic and Monetary Affairs.
On Tuesday Monti was in Paris to give assurances about the unity of the eurozone. Since the euro crisis recently intensified in Spain, national leaders have been shuttling from one country to another trying to find agreement on the necessary actions to be taken later.
Concern about Italy’s stability will increase if Spain finds it necessary to ask for financial support for its public sector, in addition to its banks.
Monti’s message for its euro partners is clear: Italy does not need to be rescued. However, the country might need a “breather” from its high interest rates at some point.
“The basic idea is that Italy does not seem to need special support right now - especially not for the rescue of its economy. [Support could be needed] with respect to the long time that it takes for the market to understand the efforts and achievements”, the Italian Prime Minister says.
It is apparent that dealing with the crisis has had an impact on the 69-year-old Monti. A staunch defender of free markets, he admits that Italy’s current situation is frustrating. The government has pushed through a number of reforms that have won international praise, but they have not had the impact on markets that had been expected.
“I had staunchly hoped that there would be an early sign in the interest level suggesting that the policy had succeeded. This happened over a period of several months, and it is somewhat frustrating that this is no longer the case.”
The Council of the European Central Bank meets on Thursday. Last week’s statement by ECB President Mario Draghi, according to which the bank was ready to take any measures necessary, caused a momentary drop in the interest rate levels in Italy and Spain. Expectations of central bank action increased.
The countries of the eurozone are also expected to take action. The countries could, for example, buy bonds of the countries in crisis through the European Financial Stability Facility (EFSF).
The possibility of such an operation was raised already at the summit at the end of June. The euro leaders promised to use stabilising mechanisms in an “efficient and flexible” manner.
Finland has opposed the idea that the EFSF, and later, the permanent European Stability Mechanism (ESM), would buy bonds as a method of bringing down interest rates. The reason is that the ECB’s purchases of about EUR 200 billion worth of bonds did not have a lasting effect.
Finland also feels that such purchases consume too much of the capital of the stability mechanisms. Monti is not commenting on Finland’s stand, but he says that Italy might be in favour of some kind of bond purchase arrangement.
“We have in our minds a possible intervention through the EFSF, ESM, and ECB in different combinations”, he says.
Italy has debts amounting to more than 120 per cent of its GDP.
Monti says that he will devote time in Finland to explain that up to now, Italy has been on the side of the lender. The country’s commitments in dealing with the euro crisis are about three per cent of GDP through the end of this year, Monti says.
Finland has been taking a contrarian view in many matters on eurozone issues. In addition to going against bond purchases, the government has demanded guarantees for its share of the bailout loans to Greece and Spain. Now Finland is locked in an intense debate over the future actions of the ESM.
Has this tough line affected Finland’s position among eurozone countries?
Monti first praises Finland’s commitment to dealing with the euro crisis. Then he notes that it is sometimes a good idea to look further.
“I am not sure if the Finnish taxpayers and the Finnish economy would benefit if Finland were to hold on to its tough stance in certain individual questions. There are narrower, and there are broader points of view. I mean that these [unpleasant decisions] are called outside influences.”
Previously in HS International Edition:
Finland sticks to conditions for aid to Greece (19.6.2012)
"Rich, happy and good at austerity" - Financial Times casts its eye over Finland (31.5.2012)