Monti insists ‘Europe has no reason to fear Italy’

ITALIAN Prime Minister Mario Monti prepared for a New Year campaign to reassure European partners his technocrat government can boost the ailing economy, with an unexpected and apparently private visit to Brussels yesterday.

Monti flew to the Belgian capital, where he previously worked as a European commissioner, ahead of a series of meetings with European leaders aimed at rebuilding confidence in Italy’s battered public finances.

“Europe has no reason to fear Italy any more,” Mr Monti told the French daily, Le Figaro, ahead of a one-day visit to Paris, where he will meet President Nicolas Sarkozy and Prime Minister Francois Fillon today and speak at a conference at the Finance Ministry.

Italy, the eurozone’s third largest economy, still poses the biggest threat to the bloc, and a debt emergency would overwhelm the bloc’s existing defences and potentially destroy the single currency.

Yesterday the yield on its 10-year bonds stood at more than 7%, around the level which tipped Greece into seeking an international bailout.

Mr Monti will meet German Chancellor Angela Merkel in Berlin on January 11 and British Prime Minister David Cameron in London on January 18 before a summit of EU leaders in Brussels at the end of the month.

He will add his support to efforts to bind the eurozone’s disparate economies more closely together and will argue for the European Financial Stability Facility, the bloc’s bailout fund, to be beefed up.

He has also said he wants to bridge the gap between France and Germany and Britain following the rancorous summit in December, which drove a wedge between London and its European partners.

Mr Monti’s appointment as prime minister in November was greeted enthusiastically by partners exasperated by his scandal-prone predecessor, Silvio Berlusconi, but Italy is still struggling to contain an escalating debt crisis that threatens the entire eurozone. Last month Italy passed a tough austerity package, but the pressure remains.

With some €600bn of bonds maturing over the next three years, Italy cannot afford to keep borrowing at current levels for long and the ECB has been forced to keep buying Italian paper to try to limit the damage. Mr Monti has stuck to the goal imposed by Europe of a balanced budget by 2013 and has already passed a €33bn mix of tax hikes and pension and spending cuts to reduce the deficit over the coming two years.

But Italy’s main problem remains weak growth and without action on this front, no progress will be made in bringing Italy’s massive public debt down.