Italy's Monti: German-led budget discipline not enough for EU

Feb 15, 2012, 17:38 GMT

Strasbourg, France - A German-led rule that will make deficits illegal within the eurozone was criticized Wednesday by Italian Prime Minister Mario Monti, who also took issue with Berlin's hostility towards eurobonds.

The so-called 'golden rule' is a centrepiece of the fiscal compact, a eurozone budget discipline pact that was accepted last month by the currency bloc's 17 members plus eight other EU nations.

In a speech to the European Parliament in Strasbourg, France, Monti said that 'once, even in the German economic culture, the golden rule' exempted public investments from the balanced budget requirement.

He said that 'once we complete the great transformation towards a culture of stability that we have started in these years, driven above all by Germany,' the EU should look 'more rationally and calmly' to economically justified deficits.

During the eurozone's two-year old debt crisis, Germany has often been chastised for being obsessed about austerity and too tightfisted towards weaker eurozone peers. Critics point to its opposition to the joint issuance of debt for eurozone members, so-called eurobonds.

A common German objection is that they would encourage fiscal indiscipline, if the likes of Greece and Portugal knew that they had their backs covered by thriftier eurozone nations. But Monti said there were ways to avoid such moral hazards.

'If a large country thinks that (eurobonds) should be introduced later rather than sooner we should respect this sensitivity, as long as nobody says that studying them is dangerous,' he said, criticizing German reactions to EU proposals on the issue.

Monti insisted that the focus on budget issues needed to be matched by action to fight protectionism - a sin Germany is sometimes accused of - and to develop the EU's internal market.

'It is very good to have dedicated so much attention to monetary union and budget discipline that must go with it; it is very bad not to have paid the same attention to the economic union,' he said.

An incomplete EU single market 'makes the eurozone malfunctioning from the point of view of an optimal currency area,' Monti, a trained economist and former EU market regulation commissioner, said.

But the Italian premier paid tribute to Germany for introducing the rest of Europe to the notion of fiscal responsibility.

'The culture of stability that Germany invented and which we have all absorbed through the euro and the Maastricht Teaty has also had the merit of giving a more serious framework to national politics,' he said.

'In the past it was too easy for politicians to say 'yes' to every demand, loading up debt on the shoulders of future generations, thus ruining their own countries,' Monti said.

The Italian premier also warned against the dangers of stoking up nationalistic feelings within the EU.

'The eurozone crisis has given birth to too many resentments, too many stereotypes, it has divided Europeans according to their latitudes, between central and peripheral states. All these categories must be decisively rejected,' he said.

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