Germany warns Italy over eurozone crisis

By Lisa Jucca and Jan Strupczewski ,Reuters

MILAN/BRUSSELS — Germany told Italians on Wednesday they must accept Prime Minister Mario Monti’s tough economic measures to avoid becoming the next victim of the eurozone debt crisis after a bailout for Spain’s banks failed to calm markets. “If Italy continues along Monti’s path there will be no risks,” German Finance Minister Wolfgang Schaeuble said in an interview with La Stampa daily when asked whether Rome was next in the markets’ firing line. Highlighting that peril, the eurozone’s third biggest economy had to pay nearly 4 percent to sell one-year treasury bills at auction on Wednesday, a six-month high, due to fears about its ability to keep servicing its debt mountain. Italy’s 1.9 trillion euros (US$2.4 trillion) of public debt is equivalent to 120 percent of gross domestic product, a ratio second only to Greece. A month ago, Rome had paid just 2.34 percent on one-year paper. Schaeuble said Italy had made huge progress under Monti’s government of technocrats, which has taken austerity measures and launched pension and labor market reforms since replacing Silvio Berlusconi’s scandal-plagued administration in November. “This is acknowledged everywhere in Europe and by the markets,” the German minister said. “I can only hope that political forces in the Italian parliament and public opinion continue to decisively back him, because the road towards a return to sustainable growth through structural reforms, improved competitiveness and a lower deficit is the right one.” Monti, whose popularity has slumped after an initial honeymoon, met the leaders of the parties backing him in parliament on Tuesday and urged them to give their unified support to help Italy through market turmoil.

In a statement, he said he was “worried by the situation of emergency” on financial markets, and had told the party chiefs that “cohesion” was needed “to overcome the critical situation and give an image of unity abroad.” Markets calmed slightly on Wednesday due to expectations of further eurozone policy action to tackle the debt crisis, but investors remain wary ahead of a general election in Greece on Sunday that could lead to the country leaving the euro area.

Greek Banks Under Pressure Greek banks have seen a marked increase in the pace of deposit withdrawals as a June 17 election, the second in two months, nears and fears grow that Athens could be forced out of the euro, senior bankers said. Combined daily deposit outflows from the major Greek banks have reached 500-800 million euros over the past few days, with the pace picking up as the election draws closer and rising noticeably on Tuesday, two bankers said. EU officials have hinted that they would be willing to consider giving Greece more time to achieve its fiscal targets, provided a new government accepted the main conditions of its assistance program.