Tuesday

16th Jan 2018

Monti calls for boost to eurozone bail-out firepower

  • Monti: 'Turbulence is not over' (Photo: European Commission)

Italian Prime Minister Mario Monti has called for a boost to the size of the eurozone bail-out fund following a mixed response to a series of bond auctions by Rome.

The technocratic leader that replaced Silvio Berlusconi last month told reporters on Thursday that the war-chest of the European Financial Stability Facility need to be “significantly greater” than at present.

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He said that for peripheral eurozone states to enjoy more successful bond sales, “most of the work needs to be done in Europe.”

He also underlined the need for a “united, joint and convincing response.”

“We believe budget discipline is essential and any mechanism that can make this discipline secure and credible is fine, as long as there is a European economic policy,” he said, “that also promotes growth.”

Monti said that he will argue at the EU level for an increase to the size of the bail-out’s firepower, although he did not offer any concrete figures. He also would not comment on the role of the ECB in the crisis, stressing his support for the central bank’s independence.

Monti’s comments came after the Italian treasury raise some €7 billion in bond sales, some way off the €8.5 billion sought from the markets.

However, the auction achieved rates considerably lower than those borne by the country’s last significant bond sale, with 10-year bonds priced at 6.98 percent yields, down from 7.56 percent in November.

Three-year bonds also saw rates drop to 5.62 percent, down from 7.89 percent.

Borrowing costs for the government declined sharply on Wednesday as well, with the rates on six-month bonds falling to 3.25 percent from 6.5 percent from the same bonds offered in November, with the government raising €9 billion on the sale.

Nevertheless, analysts pointed out that investors likely snapped up the bonds off the back of a flood of low-cost lending from the European Central Bank last week.

The ECB offered some €490 billion in three-year loans last week enjoying rates of one percent.

“Auctions held yesterday and today went rather well, but financial turbulence absolutely is not over,” said a cautious Monti on Thursday.

The prime minister went on to outline further details of a programme, dubbed ‘Grow Italy’ of cuts, tax hikes and structural adjustment.

Monti announced a €30 billion austerity package earlier this month, and on Thursday said that key moves will be unveiled in January ahead of an EU summit.

The technocratic government will focus at first on a liberalisation of the service sector and labour legislation.

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The interest rate on Italian 10-year government bonds breached seven percent on Wednesday, shattering the psychological bail-out ‘ceiling’. Greece, Portugal and Ireland all had to seek multi-billion-euro bail-outs when their 10-year bonds exceeded this threshold.

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