Photo: AP/Michel Euler, Pool
The new Italian Prime Minister told the Financial Times that it was in Germany’s “own enlightened self-interest” to help Italy and the other heavily indebted countries of the euro zone periphery to lower their borrowing costs.Monti, a technocrat appointed to replace Silvio Berlusconi, praised Germany’s “culture of stability” as “a precious German product [that] has been marvelously exported.”
The German lesson has been absorbed says Monti, not just by Italy but by Spain, Ireland and others. This leads to the money quote from the article:
“The more these [high debt] countries show to have concretely understood the imperatives of discipline … the more Germany should feel relaxed.”
But, Monti implied, the demonstrable proof that deficit reduction programs are in place means that the German government needs to help out by overcoming its reluctance to let the European Central Bank help lower Italy’s sky-high borrowing costs by purchasing more Italian bonds then it currently does.
As I noted in a lengthy post last week, Mario Monti has good relations with German Chancellor Angela Merkel. So perhaps his words of warning expressed to his FT interrogators will carry weight in Berlin:
“If this strong movement towards discipline and stability is not recognised as taking place, and a certain approach to financial aspects does not gradually evolve (code for loosening the ECB’s rules) then there will be a powerful backlash in the countries which are being submitted to a huge effort of discipline.”
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