22nd Jan 2018

Merkel calls for Italian 'frugality' amid fears of crisis contagion

  • Merkel says the second Greek bailout must be agreed quickly (Photo: The Council of the European Union)

Italy needs to adopt a 'frugal' budget in order to allay market concerns, German Chancellor Angela Merkel said Monday (11 July), as EU officials were trying to downplay worries the eurozone's debt crisis would spread to the single currency's third biggest economy.

"Italy must itself send an important signal by agreeing on a budget that meets the need for frugality and consolidation," Merkel said during a press conference in Berlin.

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She added that she spoke by phone to Italian Prime Minister Silvio Berlusconi on Sunday night and that she now had "full confidence" that the government in Rome "will pass exactly this kind of budget".

Italian bonds experienced a so-called Black Friday following the premier's criticism of his finance minister and a corruption scandal that came on top of market concerns of Greek contagion.

Italy's debt ratio is second only to Greece in the eurozone.

Merkel said that following her discussion with Berlusconi, she was confident that Italy "will show it is committed to consolidation and to combating debt".

If previously EU leaders had hoped that a second bailout for Greece could be finalised by autumn, the Italian crisis increased the sense of urgency.

"Germany and all euro partners are steadfastly determined to defend the stability of the euro," Merkel said. "Regarding Greece, I would like to say it must get a new programme very quickly, within a very short timeframe."

EU diplomats at the beginning of the eurozone meeting reinforced the sentiment that the Italian crisis will speed up negotiations on the second Greek lifeline in a bid to stop contagion.

Meanwhile, EU Council President Herman Van Rompuy tried to downplay the 'emergency meeting' he called with economics chiefs and the head of the EU commission ahead of the eurozone gathering.

In a message posted on his Twitter account four hours after the end of the meeting, Van Rompuy explained that the meeting was called "a week ago" and that it was a format that had taken place "on several occasions."

"We discussed the issues related to the implementation of the decision of the European Council on a new programme for Greece and we also exchanged views on recent developments in the euro-area," Van Rompuy said.

The cabinet of the former Belgian premier, a fan of discretion and behind-the-scenes negotiations, failed to properly notify colleagues about the meeting last week, prompting speculation about a hastily organised 'emergency meeting' about Italy.

The informal meeting, which took place over lunch, consisted of Van Rompuy, commission chief Jose Manuel Barroso, the head of the European Central Bank, Jean-Claude Trichet, the Luxembourg premier and Eurogroup chair Jean-Claude Juncker, economics commissioner Olli Rehn and the head of the working group preparing eurozone meetings, Vittorio Grilli.

"This was not a meeting about Italy. There was no Italian representative, Grilli is not part of the official Italian delegation," the spokesman for the Italian representation in Brussels told this website.

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