08/06/2012 08:14 PM
Interview with Italian Prime Minister Mario Monti
'A Front Line Between North and South'
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In a SPIEGEL interview, Italian Prime Minister Mario Monti says Europe is showing traces of a "psychological dissolution" in the debt crisis and that leaders are doing too little to stop it. He also warns that governments cannot allow themselves to become "fully bound" to parliament in determining policies to save the euro.
SPIEGEL: Mr. Prime Minister, the euro is once again under pressure and voices speaking of a possible breakup of the common currency zone are growing louder. Have you completely given up on the idea of having a summer vacation?
Monti: I only have six days and I hope they don't disappear. Still, I am rather serene when I look at the summer. There is, of course, still a risk when it comes to Greece ...
SPIEGEL: ... because it appears that bankruptcy is unavoidable ...
Monti: ... but following a long period of preparation, we achieved good results on the whole at the most recent European Union summit at the end of June -- resolutions that should give the markets a better idea of how solid the euro zone really is.
SPIEGEL: But they haven't helped to reduce pressure on Italy and Spain. Last week, European Central Bank head Mario Draghi announced that the ECB is prepared, possibly together with European bailout funds, to buy sovereign bonds from indebted member states, but only at an undefined point in the future. Are you disappointed with the bank's hesitation?
Monti: I can only welcome the ECB's statement that the market for sovereign bonds in the euro zone is undergoing a period of "severe malfunctioning." It is also true that some countries face "exceptionally high" costs in financing their debt. That is exactly what I have been saying for some time. It is self-evident that banks are pulling back behind their national borders, making it even more difficult for those countries that are suffering from market mistrust. These problems must be solved quickly so that there can be no further uncertainty regarding the euro zone's ability to withstand the crisis.
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SPIEGEL: Do you not think that the solution presented by the ECB reduces the pressure on the affected countries to clean up their state finances?
Monti: No. If you read the requirements of the European bailout funds, or even just last Thursday's ECB statement, you would have to admit that such concerns are unfounded. That is exactly the kind of distrust that has prevented us from embarking on a clear path toward a solution. We have to quickly surmount that and begin trusting one another once again.
SPIEGEL: Is there a reason to do so?
Monti: I think there is. Italy's current government has ensured a rapid reduction of the budget deficit, has passed structural reforms and has improved growth potential. Despite great sacrifice, Italians have accepted this course.
SPIEGEL: There is significant skepticism in Germany regarding ECB sovereign bond purchases. Can you not understand that those who back the bank are concerned about taking on unlimited guaranties?
Monti: The decisions facing Germany right now are not easy and I understand the difficulties German politicians are facing. To remain functional within a common currency, all countries would have had to implement reforms and arrange their budgets in a way that doesn't place a burden on others. That is why the progress that has already been achieved is so important to guarantee budgetary discipline -- like with the fiscal pact, for example.
SPIEGEL: That hasn't yet been of much help to the euro.
Monti: We have all made mistakes, even with the formation of the euro, even in an early phase when France and Germany in 2002 and 2003 violated the rules imposed by the Stability and Growth Pact and became poor examples for others. We now have to create a more responsible currency union.
SPIEGEL: That is exactly why you were asked to take on a leadership role in Italy. At last now, Rome is once again an important player in Europe.
Monti: For several years, we apparently didn't play a central role. I think it is completely normal that the third-largest economy in the euro zone has now become more active when it comes to reaching consensus on decisions facing the union.
Monti: I only have six days and I hope they don't disappear. Still, I am rather serene when I look at the summer. There is, of course, still a risk when it comes to Greece ...
SPIEGEL: ... because it appears that bankruptcy is unavoidable ...
Monti: ... but following a long period of preparation, we achieved good results on the whole at the most recent European Union summit at the end of June -- resolutions that should give the markets a better idea of how solid the euro zone really is.
SPIEGEL: But they haven't helped to reduce pressure on Italy and Spain. Last week, European Central Bank head Mario Draghi announced that the ECB is prepared, possibly together with European bailout funds, to buy sovereign bonds from indebted member states, but only at an undefined point in the future. Are you disappointed with the bank's hesitation?
Monti: I can only welcome the ECB's statement that the market for sovereign bonds in the euro zone is undergoing a period of "severe malfunctioning." It is also true that some countries face "exceptionally high" costs in financing their debt. That is exactly what I have been saying for some time. It is self-evident that banks are pulling back behind their national borders, making it even more difficult for those countries that are suffering from market mistrust. These problems must be solved quickly so that there can be no further uncertainty regarding the euro zone's ability to withstand the crisis.
.
SPIEGEL: Do you not think that the solution presented by the ECB reduces the pressure on the affected countries to clean up their state finances?
Monti: No. If you read the requirements of the European bailout funds, or even just last Thursday's ECB statement, you would have to admit that such concerns are unfounded. That is exactly the kind of distrust that has prevented us from embarking on a clear path toward a solution. We have to quickly surmount that and begin trusting one another once again.
SPIEGEL: Is there a reason to do so?
Monti: I think there is. Italy's current government has ensured a rapid reduction of the budget deficit, has passed structural reforms and has improved growth potential. Despite great sacrifice, Italians have accepted this course.
SPIEGEL: There is significant skepticism in Germany regarding ECB sovereign bond purchases. Can you not understand that those who back the bank are concerned about taking on unlimited guaranties?
Monti: The decisions facing Germany right now are not easy and I understand the difficulties German politicians are facing. To remain functional within a common currency, all countries would have had to implement reforms and arrange their budgets in a way that doesn't place a burden on others. That is why the progress that has already been achieved is so important to guarantee budgetary discipline -- like with the fiscal pact, for example.
SPIEGEL: That hasn't yet been of much help to the euro.
Monti: We have all made mistakes, even with the formation of the euro, even in an early phase when France and Germany in 2002 and 2003 violated the rules imposed by the Stability and Growth Pact and became poor examples for others. We now have to create a more responsible currency union.
SPIEGEL: That is exactly why you were asked to take on a leadership role in Italy. At last now, Rome is once again an important player in Europe.
Monti: For several years, we apparently didn't play a central role. I think it is completely normal that the third-largest economy in the euro zone has now become more active when it comes to reaching consensus on decisions facing the union.
SPIEGEL: Your meeting with French President François Hollande and Spanish Prime Minister Mariano Rajoy last week sparked concern that a southern alliance was being created to better counter demands coming from the north.
Monti: Between the two meetings, I was also in Finland. Of the three countries, I spent the most time there. In this case, it is not about north and south, it is about the currency used by 330 million Europeans. The more cohesively we act, the quicker we will find our way back onto a safe path, with fewer costs for all of us. Just now, I spoke on the telephone with Chancellor Angela Merkel, who invited me to Berlin at the end of August.
SPIEGEL: In general, however, it would seem that relations between the Italians and the Germans are somewhat clouded. Many are complaining about German rigidity and arrogance. How do you explain this atmosphere?
Monti: That has indeed been very unsettling for me in recent months and I told Chancellor Merkel of increasing resentment here in parliament -- against the EU, against the euro, against the Germans and sometimes against the chancellor herself. That, though, is a problem that goes beyond just Germany and Italy. The tensions that have accompanied the euro zone in recent years are showing signs of a psychological dissolution of Europe. We have to work hard to put a stop to it. If we were to compare Europe to a cathedral, then the euro would be its most perfect spire to date.
SPIEGEL: One which we, unfortunately, are afraid might come crashing down.
Monti: If the euro becomes a factor promoting Europe's drifting apart, then the foundation of the European project is destroyed. That is why it is the utmost duty of national leaders to explain to their people Europe's true situation and not to give in to old prejudices.
SPIEGEL: Do you believe that this problem is still solvable?
Monti: Yes and in this regard there is also a front line between North and South, there are mutual prejudices. That is very disquieting and we need to fight it. I am certain that most Germans have instinctive liking for Italy, just as Italians admire Germans for their many qualities. But I also have the impression that the majority of Germans somehow believe that Italy has already received financial aid from Germany or the European Union, which simply is not the case. Not a single euro.
SPIEGEL: How would you explain to a small business owner in Germany, who is already liable for diverse bailout packages with his or her tax money, that that person would, indirectly through the European Central Bank, have to provide guarantees for a restructuring of a bankrupt bank in Siena?
Monti: I would try to explain to that person that the reality sometimes looks totally different from the perception that one has of something. The reality is namely also that Italy, in relation to its economic size has more or less provided the same percentage of aid for Greece, Ireland, Portugal and more recently the Spanish banking sector as Germany. But also just take a look at the net benefit of this aid.
SPIEGEL: You mean that aid for the indebted states also benefits Germany?
Monti: Much of what Germany and France have done in the rescue of Greece has also helped German and French banks, who for a long time were major creditors for Greece and Greek banks. That practically doesn't apply to Italy at all, though. Seen in this way, Italy has not only not been the recipient of any aid, but we have actually given more than France or Germany if you consider the net return. This year our national debt will amount to 123.4 percent of our gross domestic product. Without the aid payments, it would be 120.3. I would explain that to a German businessman.
SPIEGEL: And you believe the German businessman would buy that?
Monti: I would also explain to him that Germany also profits from the fact that sovereign bonds in the Federal Republic of Germany are so cheap and that they can at times even be issued with negative interest rates. It is because of the risk of a euro collapse that the difference between Italy's interest rates and those of Germany is so great. In this way, the high interest rates that Italy is now having to pay are subsidizing the low ones that Germany pays. Without this risk, Germany would pay somewhat higher rates. In addition, no one can deny that Germany, simply because it is big, so productive and so efficient, is the greatest beneficiary of the common market.
SPIEGEL: Are you certain that a breakup of the euro zone is still preventable?
Monti: Yes, it is still possible, but it isn't just going to fall out of the sky.
SPIEGEL: But it also doesn't appear that the problems are going to be solved by continuing to flood them with more money. That creates breathing room for a few days, but then the pressure on the financial markets increases again. Is it possible to break this vicious cycle?
Monti: Yes.
SPIEGEL: Without constantly throwing fresh money at it?
Monti: Correct, that can't be. It would help if the communication following euro-zone decisions were improved.
SPIEGEL: But the issues here are the mountains of debt and not press conferences.
Monti: But there are these mistakes with not completely identical information being distributed that leads to new turbulence on the markets. However, much more serious is the fact that there are a few countries -- and they lie to the north of Germany -- who every time we have reached a consensus at the European Council (the EU body representing the leaders of the 27 member states) then say things two days later that call into question this consensus.
SPIEGEL: You are now referring to the Finns as well as others?
Monti: I can understand that they must show consideration for their parliament. But at the end of the day, every country in the European Union has a parliament as well as a constitutional court. And of course each government must orient itself according to decisions made by parliament. But every government also has a duty to educate parliament. If I had stuck to the guidelines of my parliament in an entirely mechanical way, then I wouldn't even have been able to agree to the decisions that were made at the most recent (EU) summit in Brussels.
SPIEGEL: Why not?
Monti: I was given the task of pushing through euro bonds at the summit. If governments let themselves be fully bound by the decisions of their parliaments without protecting their own freedom to act, a breakup of Europe would be a more probable outcome than deeper integration.
SPIEGEL: Silvio Berlusconi boasts of fighting communism in Italy. How do you want to be remembered by Italians and Europeans?
Monti: If everything goes according to plan, I will remain in office until April 2013, and I hope that I can rescue Italy from financial ruin by then -- and this with moral support from a few European friends, led by Germany. But I will also say very clearly: moral support, not financial. And, finally, I hope that Italy will simply become a little bit more boring to outside observers. If Germany and other countries are interested in ensuring a future for the current policies in Italy, then ...
SPIEGEL: ... they should make more concessions to Italy?
Monti: Again, not with financial aid. But they should allow a bit more leeway to those states in the euro zone that follow European guidelines the most closely.
SPIEGEL: Your relationship with Angela Merkel, who many saw as the loser of the last summit, is now back on solid footing?
Monti: We maintain a very friendly, cordial relationship. We have known each other for many years and I have been very pleased with the recognition I have received from both the chancellor and from Finance Minister Wolfgang Schäuble for the progress made in Italian politics.
SPIEGEL: A few weeks ago, when your predecessor Silvio Berlusconi said that he too had a cordial relationship with the chancellor, she quickly had a denial issued.
Monti: Then we can sit back and wait to see if another denial is forthcoming.
SPIEGEL: Mr. Prime Minister, we thank you very much for this interview.
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Interview conducted by Fiona Ehlers and Hans Hoyng
Monti: Between the two meetings, I was also in Finland. Of the three countries, I spent the most time there. In this case, it is not about north and south, it is about the currency used by 330 million Europeans. The more cohesively we act, the quicker we will find our way back onto a safe path, with fewer costs for all of us. Just now, I spoke on the telephone with Chancellor Angela Merkel, who invited me to Berlin at the end of August.
SPIEGEL: In general, however, it would seem that relations between the Italians and the Germans are somewhat clouded. Many are complaining about German rigidity and arrogance. How do you explain this atmosphere?
Monti: That has indeed been very unsettling for me in recent months and I told Chancellor Merkel of increasing resentment here in parliament -- against the EU, against the euro, against the Germans and sometimes against the chancellor herself. That, though, is a problem that goes beyond just Germany and Italy. The tensions that have accompanied the euro zone in recent years are showing signs of a psychological dissolution of Europe. We have to work hard to put a stop to it. If we were to compare Europe to a cathedral, then the euro would be its most perfect spire to date.
SPIEGEL: One which we, unfortunately, are afraid might come crashing down.
Monti: If the euro becomes a factor promoting Europe's drifting apart, then the foundation of the European project is destroyed. That is why it is the utmost duty of national leaders to explain to their people Europe's true situation and not to give in to old prejudices.
SPIEGEL: Do you believe that this problem is still solvable?
Monti: Yes and in this regard there is also a front line between North and South, there are mutual prejudices. That is very disquieting and we need to fight it. I am certain that most Germans have instinctive liking for Italy, just as Italians admire Germans for their many qualities. But I also have the impression that the majority of Germans somehow believe that Italy has already received financial aid from Germany or the European Union, which simply is not the case. Not a single euro.
SPIEGEL: How would you explain to a small business owner in Germany, who is already liable for diverse bailout packages with his or her tax money, that that person would, indirectly through the European Central Bank, have to provide guarantees for a restructuring of a bankrupt bank in Siena?
Monti: I would try to explain to that person that the reality sometimes looks totally different from the perception that one has of something. The reality is namely also that Italy, in relation to its economic size has more or less provided the same percentage of aid for Greece, Ireland, Portugal and more recently the Spanish banking sector as Germany. But also just take a look at the net benefit of this aid.
SPIEGEL: You mean that aid for the indebted states also benefits Germany?
Monti: Much of what Germany and France have done in the rescue of Greece has also helped German and French banks, who for a long time were major creditors for Greece and Greek banks. That practically doesn't apply to Italy at all, though. Seen in this way, Italy has not only not been the recipient of any aid, but we have actually given more than France or Germany if you consider the net return. This year our national debt will amount to 123.4 percent of our gross domestic product. Without the aid payments, it would be 120.3. I would explain that to a German businessman.
SPIEGEL: And you believe the German businessman would buy that?
Monti: I would also explain to him that Germany also profits from the fact that sovereign bonds in the Federal Republic of Germany are so cheap and that they can at times even be issued with negative interest rates. It is because of the risk of a euro collapse that the difference between Italy's interest rates and those of Germany is so great. In this way, the high interest rates that Italy is now having to pay are subsidizing the low ones that Germany pays. Without this risk, Germany would pay somewhat higher rates. In addition, no one can deny that Germany, simply because it is big, so productive and so efficient, is the greatest beneficiary of the common market.
SPIEGEL: Are you certain that a breakup of the euro zone is still preventable?
Monti: Yes, it is still possible, but it isn't just going to fall out of the sky.
SPIEGEL: But it also doesn't appear that the problems are going to be solved by continuing to flood them with more money. That creates breathing room for a few days, but then the pressure on the financial markets increases again. Is it possible to break this vicious cycle?
Monti: Yes.
SPIEGEL: Without constantly throwing fresh money at it?
Monti: Correct, that can't be. It would help if the communication following euro-zone decisions were improved.
SPIEGEL: But the issues here are the mountains of debt and not press conferences.
Monti: But there are these mistakes with not completely identical information being distributed that leads to new turbulence on the markets. However, much more serious is the fact that there are a few countries -- and they lie to the north of Germany -- who every time we have reached a consensus at the European Council (the EU body representing the leaders of the 27 member states) then say things two days later that call into question this consensus.
SPIEGEL: You are now referring to the Finns as well as others?
Monti: I can understand that they must show consideration for their parliament. But at the end of the day, every country in the European Union has a parliament as well as a constitutional court. And of course each government must orient itself according to decisions made by parliament. But every government also has a duty to educate parliament. If I had stuck to the guidelines of my parliament in an entirely mechanical way, then I wouldn't even have been able to agree to the decisions that were made at the most recent (EU) summit in Brussels.
SPIEGEL: Why not?
Monti: I was given the task of pushing through euro bonds at the summit. If governments let themselves be fully bound by the decisions of their parliaments without protecting their own freedom to act, a breakup of Europe would be a more probable outcome than deeper integration.
SPIEGEL: Silvio Berlusconi boasts of fighting communism in Italy. How do you want to be remembered by Italians and Europeans?
Monti: If everything goes according to plan, I will remain in office until April 2013, and I hope that I can rescue Italy from financial ruin by then -- and this with moral support from a few European friends, led by Germany. But I will also say very clearly: moral support, not financial. And, finally, I hope that Italy will simply become a little bit more boring to outside observers. If Germany and other countries are interested in ensuring a future for the current policies in Italy, then ...
SPIEGEL: ... they should make more concessions to Italy?
Monti: Again, not with financial aid. But they should allow a bit more leeway to those states in the euro zone that follow European guidelines the most closely.
SPIEGEL: Your relationship with Angela Merkel, who many saw as the loser of the last summit, is now back on solid footing?
Monti: We maintain a very friendly, cordial relationship. We have known each other for many years and I have been very pleased with the recognition I have received from both the chancellor and from Finance Minister Wolfgang Schäuble for the progress made in Italian politics.
SPIEGEL: A few weeks ago, when your predecessor Silvio Berlusconi said that he too had a cordial relationship with the chancellor, she quickly had a denial issued.
Monti: Then we can sit back and wait to see if another denial is forthcoming.
SPIEGEL: Mr. Prime Minister, we thank you very much for this interview.
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Interview conducted by Fiona Ehlers and Hans Hoyng
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