Letta says EU must quell austerity ‘ayatollahs’
(By Paul Virgo) (ANSA) – Rome, November 22 – Italian Premier Enrico Letta said Friday that the European Union had to resist never-ending demands for fiscal consolidation from pro-austerity “ayatollahs”. “On the European front, for some ayatollahs of rigour, this is never enough,” Letta said. “But Europe will end up dying of too much rigour, our companies will end up dying”. Letta has been pushing for the union to focus more on promoting growth and job creation, after EU-mandated austerity in many countries hit by the eurozone debt crisis caused a great deal of economic pain.
In Italy, for example, unemployment has reached record levels of over 12%, with over four in 10 under-25s jobless, after moves to put the country’s financial house in order deepened its longest recession in over two decades.
Later on Friday the premier is set to visit Berlin, where he will meet German Chancellor Angela Merkel, the champion of Europe’s drive for fiscal consolidation. Letta said Italy will use its duty presidency of the European Union in the second half of next year to ensure that the EU moves to a period of promoting growth and fighting unemployment. Rome will have more credibility in this bid thanks to its efforts to get its finances straight, added Letta. “We have to put the season of financial rigour behind us, but the season of growth has to be based on having the accounts in order,” said Letta, who took power at the helm of a left-right coalition government in April to end two months of political deadlock after February’s inconclusive general election. “For the first time after many years, both our debt and deficit will be in decline next year,” added the premier, whose government is planning to raise 10-12 billion euros in privatizations and push through a round of spending cuts to reduce debt and finance growth-stoking measures.
“We’d all like to have more money (to invest in the budget), but that would mean breaking the (EU) deficit rules”.
Letta said that Italy will remain vulnerable to financial turbulence while the interest rate on its 10-year bond is above 3%. Italy risked enduring a Greek-style financial meltdown in 2011, when the rate on the 10-year-bond peaked at over 7%, with the spread between it and the German benchmark above 500 points.
Austerity polices introduced by the emergency technocrat government of Letta’s predecessor, Mario Monti, reassured investors and steered Italy out of the crisis. The interest rate on 10-year bonds is currently a little over 4%, while the spread is over 230 points, but Letta says this is not good enough. “We will continue to experience vulnerability until we have a rate on the 10-year bond that is at least as low as 3%, until that is a reference point for the system,” Letta told the assembly of Italian cooperative banks, Federcasse. Letta also said the EU needed to bolster the European Investment Bank (EIB) as the efforts of the European Central Bank (ECB) to promote growth were insufficient on their own.
“There is the risk of making a fatal mistake,” Letta said. “That would be to give all the weight to a single instrument, the ECB, even though this made it possible to calm the crisis under the leadership of an authoritative Italian, Mario Draghi. “The ECB cannot promote development. It’s necessary to reinforce the EIB”.
The European Commission, meanwhile, said Friday that the Italian government’s plan to sell as much as 12 billion euros’ worth of investments will raise some quick cash but it does not replace the importance of serious structural reforms.
The cash will be useful but is a one-time windfall that can’t replace structural reforms aimed at longer-term economic improvements, said Imon O’Connor, spokesman for European Economic and Monetary Affairs Commissioner Olli Rehn.