German Chancellor Angela Merkel says the euro zone’s top priority for the beginning of this year is to secure a second aid package for Greece.
After meeting with the Italian Prime Minister Mario Monti in Berlin Merkel said the Greek situation has to be resolved before Europe can start working out how to boost growth and jobs.
That hangs on finalising a deal for private creditors to take a 50 percent writedown on their Greek bondholdings, which remains elusive with time running short.
At a joint news conference, Merkel also expressed admiration for how quickly Monti’s new technocrat government had launched urgent budgetary measures and now structural reforms aimed at making the Italian economy more competitive.
“Both in terms of the speed as well as the substance of these measures, I believe they will strengthen Italy and improve the country’s economic prospects.”
That would have been music to the ears of Monti who has said the European Union must recognise Italy’s efforts.
He reciprocated Merkel’s praise by saying: “Germany is living proof to every European country of the fact that budget discipline and an economy based on the free market is the best recipe for growth”
Monti thanked the Italian people and the parliament for what he called their “mature” response to very painful reforms, adding that Italy could only make progress within a more helpful European context, including cheaper borrowing.
Italy still faces 10-year borrowing costs of around seven percent, widely viewed as unsustainable for an economy saddled with a debt of around 120 percent of GDP. Rome has to refinance tens of billions of debt in the first four months of the year.
Monti aid it was up to Europe to “facilitate the transformation of good policies into lower interest rates”.
He told the German chancellor: “Europe no longer has to fear Italy as a possible source of contagion for the euro zone, but can count on it working with Germany, France and other countries in the drive for stability and growth.”
Monti, Merkel and France’s president Sarkozy will meet again in Italy on January 20, ten days before the next EU summit.