While many politicians around Europe were busy condemning Standard & Poor’s downgrades of many eurozone country ratings, Mario Monti, the Italian prime minister, has welcomed the analysis.
The Italian debt rating was cut 2 points to BBB+ by S&P, leaving it with the lowest of any country in the Eurozone not to have undergone a recent bail-out with the exception of Cyprus. However, Mr Monti points out how the agency agrees with his view that the major cause for concern at the moment is “the weakening policy environment at European level, which is to a certain degree offset by a strong domestic Italian capacity”.
In other words, the agency is convinced that ‘Super Mario’’s reforms have put Italy on a path of reform that could return the country to growth and shrink its debt levels, but that EU mismanagement of the debt crisis is dragging down struggling countries, including Italy with its debt of €1,900bn.
Growth and not austerity, Mario Monti says, should be the focus of Eurozone policymaking and more effort should be made to drive down borrowing costs for struggling countries, a position that German officials are resisting, fearing it will relieve the pressure on these countries to reform. “As the country approaches a structure that is the one that Europe wants each country to have, there has to be a visible improvement somewhere else. In a country like Italy now, the somewhere else can only be interest rates [on Italian bonds]”.
By pressing for help in pushing down bond yields, Mr Monti is making clear that he wants something in return – be it a commitment to so-called ‘Eurobonds’ backed by all 17 eurozone members or an increase in the €440bn Eurozone rescue fund. Both of those would rely heavily on Germany’s balance sheet and both have been resisted by Berlin. “I’m convinced, and the IMF is also convinced, that the more pledges are made [to the rescue fund], the smaller the probability that a single euro of cash will have to be disbursed” Super Mario says.
“Germany may be the most important EU economy, but at the same time it is one of us and it also has obligations to which it normally complies” Mr Monti says. His next push comes on Thursday when his cabinet will attempt to pass an important set of measures aimed at dismantling a set of privileges, residues of decades of anticompetitive practices. Targets are taxi operators, pharmacies, energy providers and professions such as doctors, lawyers and notaries.
He needs all the help it can for the sake of Italy and Europe as a whole.
Source: Financial Times, 18.01.2012