Sunday

12th Jul 2020

Italy chastises Germany for handling of euro crisis

  • Italy had strong words for the way Germany is handling the crisis (Photo: Wayne Lam (Ramius))

A German finance ministry official caused a stir at a Brussels conference by urging deficit countries to "become ants" rather than profligate "grasshoppers," in response to criticism by Italy's Prime Minister Mario Monti that Berlin is too slow in helping troubled euro-countries.

"More money is not the solution. We need to repair the lack of competitiveness in the eurozone, which is only feasible through reforms, investments in innovation and building up a stable legal framework," Thomas Steffen, a director general in the German ministry of finance said on Thursday (31 May) during the Brussels Economic Forum, a conference organised by the European Commission.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

In reply to Monti, who spoke during the same event via videolink, Steffen suggested that Italy and other southern countries are just like East Germany during the re-unification process: "What we did was we spent a lot of money, investments, built a legal framework only to learn a very simple thing: there is no button to push to create growth."

Monti during his speech acknowledged that his country has accumulated a high level of debt, which he labelled as "sins of the past", but insisted that Germany's reluctance to stop contagion from other troubled countries to Italy is driving up borrowing costs in an unfair manner.

"I know there is the argument that unless there is pressure from the markets, governments will not do the effort of structural reforms. But the more months go by with society submitted to this strong effort without seeing any objective indication from markets this is an effort worth doing, obviously there will be a backlash sooner or later," the Italian premier said.

"Germany should really reflect deeply but quickly about these aspects," he warned, or else risk having its culture of fiscal discipline undermined.

Monti also pleaded for more public investments and said the whole paradigm that state expenditure is bad under any circumstance and has to be kept in strict limits is "biased" and should be rethought.

Grasshoppers and ants

But the German official disagreed.

In his bid to illustrate the German stance on things financial, Steffen recalled a fable written by Jean de La Fontaine in the 17th century "about the grasshopper that enjoyed summer, spending a lot of money" and then having no food in winter, while the ant, "not enjoying the summer but preparing for winter, had simply the better concept in place."

"Maybe we should all become ants rather than grasshoppers," the German official said.

One French economist from Harvard University, Philippe Aghion, retorted that La Fontaine also had a fable about an oak despising the "flexibility" of the bamboo. But during a storm, the "stable" oak breaks while the bamboo resists. To which Steffen replied: "It was not German oak."

Lucio Pench, an Italian EU commission official, also pointed out an "important problem" in Steffen's metaphor: that lenders in a market economy cannot pile up food and sit on it waiting for the winter, but rather accumulate guarantees from producers or borrowing countries that they will pay back.

"So there is also a self-interest for the debtor to pay, not just a matter of solidarity," he said.

A Greek commission official, visibly disturbed by the comparison, said she would probably be called one of the "grasshoppers," but her and her fellow nationals were hard working "ants" as well.

Another economist in the audience challenged Steffen on the matter, pointing out that not all countries in Europe can run surpluses and be as competitive as Germany.

"Yes, it's true we cannot have only surplus countries. But the current processes in Germany leading to higher wages could mean that Germany will become less competitive while others are catching up. The basic point about the grasshopper was whether we should be short or long-term oriented," Steffen argued.

Spanish and Italian borrowing costs soar

The cost of insurance against a Spanish default reached another record on Monday, with Italy's borrowing costs also rising sharply amid market fears about the eurozone.

Germany's free borrowing is 'destroying Europe'

European Parliament chief Martin Schulz has launched a scathing attack on the German chancellor for promoting policies he says drive the borrowing costs of other euro-countries up, while Germany has just hit a record zero-percent interest rate on its bonds.

Merkel: eurozone needs more EU supervision

German's Angela Merkel supports more integration in the eurozone - a veiled reference to pooling debt provided EU institutions gain more supervisory powers.

Italy denies need for bail-out

Italy's Mario Monti has said his country does not need a bail-out, even though its borrowing costs have soared amid contagion from Spain.

Michel lays out compromise budget plan for summit

Ahead of expected tense discussions next weekend among EU leaders, European Council president Charles Michel tries to find common ground: the recovery package's size, and grants, would stay - but controls would be tougher.

EU forecasts deeper recession, amid recovery funds row

The economies of France, Italy and Spain will contract more then 10-percent this year, according to the latest forecast by the EU executive, as it urges member state governments to strike a deal on the budget and recovery package.

News in Brief

  1. Citizens' perception of judicial independence drops
  2. Irish finance minister voted in as eurogroup president
  3. Italy's League party opens office near old communist HQ
  4. 'Significant divergences' remain in Brexit talks
  5. Germany identifies 32,000 right-wing extremists
  6. WHO to hold probe of global Covid-19 response
  7. China accuses Australia of 'gross interference' on Hong Kong
  8. EU to let Croatia, Bulgaria take first step to join euro

EU forecasts deeper recession, amid recovery funds row

The economies of France, Italy and Spain will contract more then 10-percent this year, according to the latest forecast by the EU executive, as it urges member state governments to strike a deal on the budget and recovery package.

Stakeholders' Highlights

  1. UNESDANext generation Europe should be green and circular
  2. Nordic Council of MinistersNEW REPORT: Eight in ten people are concerned about climate change
  3. UNESDAHow reducing sugar and calories in soft drinks makes the healthier choice the easy choice
  4. Nordic Council of MinistersGreen energy to power Nordic start after Covid-19
  5. European Sustainable Energy WeekThis year’s EU Sustainable Energy Week (EUSEW) will be held digitally!
  6. Nordic Council of MinistersNordic states are fighting to protect gender equality during corona crisis

Latest News

  1. Michel lays out compromise budget plan for summit
  2. Border pre-screening centres part of new EU migration pact
  3. EU 'failed to protect bees and pollinators', report finds
  4. MEPs give green light to road transport sector reform
  5. If EU wants rule of law in China, it must help 'dissident' lawyers
  6. Five ideas to reshape 'Conference on Future of Europe'
  7. EU boosts pledges to relocate minors from Greece
  8. Hydrogen strategy criticised for relying on fossil fuel gas

Join EUobserver

Support quality EU news

Join us