Hollande and Monti urge ECB action on bond yields
FRANCE AND Italy have urged the European Central Bank to act to ease financial pressure on struggling euro zone states, raising pressure on the bank on the eve of a keenly awaited meeting of its governing council.
French president François Hollande said European institutions, “notably the ECB”, must act to bring down the bond yields of countries that were unjustifiably penalised by markets.
He was speaking in Rome after talks with Italian prime minister Mario Monti as European leaders began a fresh round of shuttle diplomacy over the euro zone debt crisis.
Mr Monti said he expected measures to remove “the serious obstacle of spreads that have no underlying economic justification” for Italy and other countries. He said EU institutions recognised that, for some countries, “doing our homework” on economic reform and deficit reduction was not bringing adequate market reward.
The Bank of Italy said in a study published yesterday that economic fundamentals justified a risk premium of 200 basis points – two percentage points – over benchmark German bonds, rather than the 450 basis points markets were charging at August’s end.
The Rome meeting was the third between the French and Italian leaders since Mr Hollande succeeded Nicolas Sarkozy at the Élysée Palace in May, reflecting the closer relationship between Paris and its southern neighbours since the socialist came to power. Mr Hollande visited Spanish prime minister Mariano Rajoy in Madrid last week.
While insisting on France’s “indispensable” relationship with Germany, Mr Hollande has criticised the Franco-German “directorate” that existed under his predecessor. He has built closer ties with Rome and Madrid, finding common cause on the economic growth agenda and the question of a greater role for the ECB in fighting the crisis.
Mr Hollande has sought to position France as a “bridge” between southern states (which he argues should not have to pay exorbitant interest rates while making efforts to cut their deficits) and northerners such as Germany and Finland. At yesterday’s meeting, Mr Hollande sought his Italian counterpart’s support for a French proposal to hold more regular meetings of euro zone heads.
Attention will turn tomorrow to Frankfurt, where ECB president Mario Draghi is expected to outline a new bond-buying plan aimed at easing pressure on struggling states. The interest rates Spain and Italy pay have eased on expectations the ECB will resume purchases of the countries’ bonds.
In Rome, Mr Hollande said an EU leaders’ summit in October could finalise solutions not just on Greece but also Spain. Mr Rajoy has said he is waiting to hear more about an ECB bond-buying programme before deciding if his country will apply for a bailout.