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Italy presses Germany for more crisis flexibility
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Analysis & Opinion
Let Germany inflate while others deflate
Europe’s new, suicidal normal
By James Mackenzie and Paul Carrel
FLORENCE, Italy/FRANKFURT |
Wed May 9, 2012 12:14pm EDT
FLORENCE, Italy/FRANKFURT (Reuters) - Italy pressed for a relaxation of German policy orthodoxy on Wednesday as Prime Minister Mario Monti and a senior central banker urged Europe to go beyond the rigid focus on budget discipline demanded by Berlin in the financial crisis.
Monti, who has taken a leading part in urging more emphasis on growth, repeated his calls for adjustments to budget rules to allow more investment spending by governments and said he believed jointly issued eurobonds would come eventually.
Speaking at a conference organized by the European University Institute, he acknowledged that much work had still to be done to overcome German objections, which he said were based on a conception of economics that saw growth as the reward for virtuous policy making.
"Any creative, imaginative, thought-provoking theory and policy which may lead to more growth through some subversion of this moral economic identity, has at the very least to be well explained in order to gain German minds and, even more difficult German hearts, and I'm not speaking of German pockets," he said.
Although Monti repeated his commitment to budget discipline and called for a strengthening of the single market, his comment underlined growing anti-austerity pressure in Europe after French Socialist Francois Hollande's election victory and the losses suffered by the big parties in Greece.
Monti, an unelected former European commissioner, gave a cautious welcome to the new French president and the greater insistence he has placed on growth but he added that he hoped Paris would also maintain sound finances.
"We want to find ways towards growth in Europe that are not contrary to the principle of budget discipline," he said.
German Chancellor Angela Merkel has stuck to demands that heavily indebted southern European states governments obey the strict budget rules agreed under the EU's so-called fiscal pact but the victory of Hollande and the turmoil in Greece has brought a sharp change in the climate.
MORE ACTIVE ECB ROLE
Speaking at the same conference, Bank of Italy Director General Fabrizio Saccomanni called for the European Central Bank to be more active in fighting the euro zone crisis, a rare push by one of the bloc's central bankers that quickly ran into resistance from Germany's Bundesbank.
"I think the ECB should play a more active role and should be allowed to play a more active role in market stabilization," Saccomanni said.
His comments took on particular significance as Spanish sovereign bond yields broke above the psychologically important 6 percent level, with investor concerns growing about Spain's banking system and Greece's political future.
Saccomanni told reporters the ECB's non-conventional tools such as bond buying and liquidity operations had proved their worth despite criticisms from some quarters when they were agreed in the face of strong opposition from the Bundesbank.
The ECB has faced renewed pressure over its role from France, where President-elect Francois Hollande has called on the central bank to lend to struggling euro zone states via the region's bailout fund.
The Bundesbank is leading opposition on the ECB's policymaking Governing Council to such pressure and the German national central bank kept up its mantra on Wednesday in a statement that was directly at odds with Saccomanni's comments.
"The real causes of the sovereign debt crisis cannot be solved by monetary policy," it said in a statement prepared for a German parliamentary hearing on the crisis.
The Bundesbank stressed the importance of separating monetary and fiscal policies in order to maintain the independence of the Eurosystem of euro zone central banks and confidence in the euro currency.
"In this respect, the balance sheet risks of the Eurosystem must henceforth be held within limits and an exit from unconventional monetary policy kept in view," it added.
(Editing by Jeremy Gaunt)
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