Al-Jazeerah: Cross-Cultural Understanding
News, May 2012
Monti Delays Balancing Italian Budget by 2013,
Blames Germany and France for Eurozone Crisis
Italy to miss pledge to balance budget by 2013
France 24, April 18, 2012, By News Wires (text)
Italian Prime Minister Mario Monti declared on Wednesday that reviving economic growth now had to take priority over belt tightening that could plunge the country deeper into recession.
Monti delayed by a year his technocrat government’s goal of balancing the budget in 2013 but market reaction was muted, in contrast to fellow euro zone struggler Spain which has sent its borrowing costs soaring by relaxing its deficit targets.
“Everything, everything, everything that we are doing now is aimed towards helping growth,” Monti told a news conference after a cabinet meeting.
Monti’s strategy, announced only two days after one of his ministers said the government still aimed to balance the budget next year, contrasts with those of other euro zone governments that plan more tough austerity to reduce their deficits.
His cabinet approved new economic targets projecting a much deeper recession than originally forecast and raising the deficit goals from 2012 until 2014, when the government now aims to balance the budget.
Italian bond yields rose on Wednesday but only modestly. This reflected the continuing credibility that Monti, a former European Commissioner, holds on markets and investors’ belief that Italy’s main problem is its chronically weak economy, not fiscal slippage.
Italy’s budget deficit is one of the lowest in the euro zone as a proportion of output, whereas Spain’s is one of the highest and its new Prime Minister Mariano Rajoy has yet to earn the levels of investors’ confidence that Monti enjoys.
Markets have been tougher on Spain, which last month raised its deficit target for this year, though some economists say investors are in fact also more concerned about the effects of more austerity being imposed on the Spanish economy.
Italy’s new forecasts raise the 2012 deficit target marginally to 1.7 percent of gross domestic product from 1.6 percent, while the 2013 goal is raised to 0.5 percent from 0.1 percent. An almost balanced budget, with a 0.1 percent deficit, is now targeted in 2014.
International bodies and Italy’s European Union partners have remained fully supportive of Monti even as it became increasingly clear that he was unlikely to balance the budget next year as targeted.
The International Monetary Fund said on Tuesday that Italy would not balance its budget before 2017 but urged Monti not to adopt more austerity measures that would weaken an economy it forecast would contract this year by a hefty 1.9 percent.
U.S. Treasury Secretary Timothy Geithner also said on Wednesday it that debt-stricken European nations should avoid moving too sharply with immediate budget cuts and higher taxes.
“It’s very important to get that balance right between ... growth and austerity,” he told an event at the Brookings Institution. Geithner called for “gradually phased in medium-term plans for reform”.
“To try to do it all up front, the risk is ... you’re undermining the prospects for some stability in growth,” he said.
Monti said the new target was in line with the requirements of the EU’s recently approved Fiscal Compact, which says that deficits should be adjusted for the business cycle, though it is not yet in force.
After factoring in the effects of recession, Italy will post a budget surplus of 0.6 percent of GDP in 2013, Monti said, emphasising the damage that recession was inflicting on southern European countries.
Banca Intesa said in a note to clients that the deficit slippage was not only due to the weaker economic outlook, but also “the only partial effectiveness of some of (the government’s) austerity measures”.
The bank said the deficit goal was being revised up even though a fall in bond yields since Italy set its previous targets in December would save it about 14 billion euros this year.
The economy is forecast to contract 1.2 percent this year, according to the government forecast, compared with a 0.4 percent decline in GDP which it projected in December.
A 30-billion euro austerity plan that Monti rushed through at the end of last year, made up largely of tax increases, is partly to blame for this year’s recession which has in turn worsened the outlook for public finances.
This austerity-recession-austerity chain is common to other peripheral euro zone countries from Greece to Portugal, and is exactly the vicious circle that Monti is trying to break, with growing support from economists.
Spain has seen its bond yields rise sharply since it tried last month to raise its deficit goal for this year to 5.8 percent from 4.4 percent and then compromised with its EU partners on a 5.3 percent goal.
Yet many economists believe investors are less anxious about austerity than growth.
“The markets are more worried now by Spain slamming on the fiscal brakes harder,” said Nicholas Spiro of Spiro Sovereign Strategy. “The lesson now is that bond market credibility is at least as much to do with getting these economies off the ground and moving as (it is) with fiscal discipline.”
One problem for Monti is that even his new growth projection is more optimistic than those of most independent forecasters, who expect a contraction of around 1.5 percent.
The government plan forecasts that Italy’s public debt, the second highest in the euro zone as a proportion of output after Greece, will rise this year to 123.4 percent of GDP from 120.1 percent in 2011, and fall in 2013 to 121.6 percent.
Monti, who is facing increasing resistance to his reforms and falling popularity ratings, expressed sympathy for the suffering of ordinary Italians in the economic crisis.
But he said things would be much worse if his government, which took power in November, had not averted the immediate threat of a Greek-style debt crisis.
Under the previous government of scandal-plagued premier Silvio Berlusconi, the euro zone's third biggest economy tottered close to default as markets lost faith in its ability to reform the economy.
Italy's Monti blames Germany, France for eurozone crisis
France 24, 28/03/2012
By News Wires (text)
Italian Prime Minister Mario Monti on Wednesday said the root of Europe's debt woes lay partly in the irresponsible parenting of Germany and France during the bloc's infancy.
Monti told reporters in Tokyo that because the eurozone's two largest players had not abided by fiscal rules, they had set a bad example for the rest of the continent.
"The story goes back to 2003 (and) the still almost infant life of the euro," Monti said.
"It was in fact Germany and France that were loose concerning the public deficits and debts."
The widely-respected technocrat, who replaced billionaire media magnate Silvio Berlusconi in November as head of the eurozone's third largest economy, said the flouting of rules allowing for an annual budget deficit of no more than three percent of GDP was the issue.
He said despite recommendations, a meeting of ministers from European Union governments had decided not to punish France and Germany for going beyond the deficit limit.
"So the two largest countries in the eurozone had the (deficit) with complicity of Italy, which was then chairing under the rotation system the council of prime ministers of European Union.
"Of course if the father and mother of the eurozone are violating the rules, you could not expect... (countries such as) Greece to be compliant."
Monti, who was speaking during a visit to Japan, was a member of the European Commission in the early 2000s when it recommended sanctions be levied against countries that were running over-the-top deficits.
The European Council – comprising elected politicians – vetoed the move.
Monti's visit to Japan comes as Europe continues to stagger under the weight of runaway sovereign debt, with Greece at the forefront.
The eurozone is under pressure to boost the firepower of its debt rescue fund, with the 34-nation OECD on Tuesday pressing for a safety net of at least 1.0 trillion euros ($1.33 trillion).
Eurozone finance ministers are meeting on Friday and Saturday in Copenhagen to decide whether to increase the size of their debt rescue mechanism amid resurgent concerns about the financial health of Spain.
The OECD said the refinancing needs of vulnerable eurozone nations could top 1.0 trillion euros over the coming two years, on top of cash needed to recapitalise banks.
Italy alone needs some 750 billion euros to finance its debt, while Spain requires around 370 billion euros over the next three years.
Asked about the size of the hike in the eurozone firewall, Monti declined to give a specific figure but said: "I'm confident that the compact is solidly in place, the time for a conclusive and adequate decision on the firewalls has come."
The premier, who was due to meet his Japanese counterpart later in the day, said he believed Europe now had a handle on its debt crisis and Italy was unlikely to suffer at the hands of the markets the way that Spain had.
"I think contagion (is) certainly not from Spain. Spain is I'm sure on a steady course of budgetary consolidation.
"And contagion as a whole I hope will soon belong to the past, now that more discipline is being adhered to by most member states and now that the firewalls are in the process of being fortified," he added.
The Copenhagen meeting will also focus on Spain's plans to rein in its public deficit to 5.3 percent of gross domestic product.
European leaders are concerned over Spain's deficit, fearing it may become the biggest victim of a eurozone debt crisis that has already driven Greece, Ireland and Portugal to accept international bailouts.
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