Merkel, Monti to discuss euro crisis

The leaders of Germany and Italy are due to hold euro crisis talks here on Wednesday, as Spain lurches closer to a bailout and Greece races to secure aid to keep it in the eurozone. Prime Minister Mario Monti’s visit to the German capital is the latest shuttle diplomacy that already brought the French president and Greek premier to the German chancellor’s office in quick succession last week. The focus of their discussions will be “the situation in the eurozone and the economic development in Europe”, Angela Merkel’s spokesman has said. The pair will give a joint news conference at 1215 GMT. Hours before arriving in Berlin, Monti again ruled out his country asking for a bailout. “After the efforts Italy has made and the results achieved, I certainly don’t want it to be subjected to a sort of intrusive supervision, like the other countries which had to ask for help to balance their budgets. “We are not in that situation,” Monti told Italy’s economic daily Il Sole 24 Ore. After months of spiralling borrowing costs on the financial markets, Italy enjoyed some respite on Tuesday when those costs fell sharply at bond auctions helped by hopes of European Central Bank intervention. ECB chief Mario Draghi told German weekly Die Zeit on Wednesday that the central bank would always act within its mandate to ensure price stability but exceptional measures might be required to achieve that. He has already said the Frankfurt-based bank “may” resume buying sovereign bonds of debt-wracked eurozone members to help drive down their costs but has so far not revealed under what conditions. The plan faces stiff resistance, including from the head of the Bundesbank, Jens Weidmann, who told Spiegel news weekly this week it was dangerous, warning countries could get “hooked” on the intervention “like a drug”. But Monti argued that preventing the ECB action could end up being “an own goal” especially for Germany. Pointing to the wide spread between the interest rate, or yield, on Italian and German bonds, Monti said it could lead to a “potential rise in inflation for Germany which, I believe, doesn’t correspond to ECB or German government’s wishes.” Monti, a former European Commissioner, has recently become prominent in shaping eurozone crisis-fighting plans, winning concessions at an EU summit in June together with the Spanish leader. After tense talks, Monti was perceived to have emerged the victor for having beaten down opposition by Merkel on a surprise accord for eurozone leaders to try to help Italy and Spain calm their markets. The Financial Times Deutschland last week spoke of a “showdown” between Germany and Italy, with Berlin’s insistence on strict budget conditions and banking and political union at odds with Italy’s demand for immediate help via eurobonds and ECB bond-buying. “What is blasphemy for the Germans, is, for the Italians, salvation,” it noted. Merkel’s austerity-driven approach to fighting the crisis sparked one Italian newspaper to compare her government to a “Fourth Reich”. Monti is battling to show the markets that Italy, the eurozone’s third largest economy, can keep on top of its massive debt with a series of austerity packages and tax hikes, as well as lay the foundation for future growth with a series of reforms. EU leaders are gearing up for an October 18-19 summit as well as other key meetings and decisions over the coming weeks as Spain’s plight again rises to the forefront of the three-year crisis. On Tuesday, its debt-struck Catalonia region, responsible for one-fifth of Spanish economic output, said it was seeking a 5.0-billion-euro ($6.3-billion) central government rescue. Despite Madrid having secured a 100-billion-euro eurozone rescue loan for its banks in June, analysts believe Spain’s high borrowing costs will still force it to seek a sovereign bailout before a repayment crunch in October. Meanwhile Greece is struggling to come up with 11.5 billion euros in savings to unlock bankruptcy-saving loans from the European Union and the International Monetary Fund. A call by Greek Prime Minister Antonis Samaras for more time to implement spending cuts and asset sales has so far gone unanswered. Merkel and others have pointed to the need to first await a progress report on Greek public finances by its international auditors due by early October.