Italy’s Monti: ‘Optimistic’ On Moves To Cap Borrowing Rates

Author: Market News International | Category: News

Author: Market News International

–Downgrades Inject Sense of Urgency on Efforts vs Crisis

LONDON (MNI) – Italian Prime Minister reiterated his hope that
there will soon be policy steps to put a cap on the wide spreads between
yields on euro periphery country bonds and those of the core euro zone
states.

Speaking at the London School of Economics, Monti said doing one’s
“homework” in terms of taking much-needed fiscal action in Italy’s case
had not been enough to bring high yield spreads down.

“The sustainability of efforts … for us to get a solid budgetary
consolidation and growth through the removal of structural constraints
to growth is going to be very difficult in its sustainability through
the months and the delivery of the expected results unless there is some
return,” the prime minister said.

Monti said that this did not refer to “money from any particular
member state” or any concessions.

“We don’t want, don’t need concessions,” Monti said.

What Italy needs is a “sufficiently effective governance of the
euro zone that is able to eliminate the risk markets now associate
with the euro zone, in terms of the much-observed spread between Italian
Treasury bonds and the German bund”.

Despite the decisive action taken by Italy’s new technocratic
administration, Monti noted that this had not produce results in terms
of lower market interest rates.

“This is the living proof that if one does one’s own homework …
that is not sufficient in the present policy environment for a country
to be able to reap the benefits — not in terms of transfers from
anywhere else — but in terms of lower interest rates”.

“This has hugely negative political and economic consequences,”
Monti said.

The current 7% borrowing rate on 10-year BTPs was not conducive to
growth and showed the need for a better governance of the euro zone,
Monti said.

“This should not be confused in anyway with a transfer union,”
Monti said.

But he said he is “rather optimistic now” that quiet progress is
underway towards achieving this goal of putting a ceiling on rates for
those states which are making efforts to sanitize their public finances.

“I see different pieces coming together which lead me to believe we
will have some silent/quiet … coming together of different pieces
without much triumphalistic declarations which might allow us to even
breathe a bit”.

We are having a close relationship with the German government and
the German chancellor,” he told the audience.

Tackled on whether the euro zone would make a foray into eurobonds
as a solution to its present problems, Monti said he thought that “there
will be a place for them structurally in the slightly longer term”.

Monti said he does not see why government bonds should be alone in
being excluded from reaping the benefits of the European single market
and so achieving a high degree of liquidity and sharing of risk which
could be achieved by some type of eurobond.

Commenting on Italy’s recent downgrade by Standard & Poor’s, Monti
said this has injected a sense of urgency into the efforts of euro zone
governments to achieve a solution.

“This does create a feeling … among the governments that
something needs to be done urgently.”

Receiving an honorary LSE baseball cap at the end of his speech,
Monti jested that the hat could be “symbolic of a soon-to-come cap on
interest rates”.

–London newsroom: 0044-207-862 7492: email: dthomas@marketnews.com

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