France and Italy continue to pressure the European Central Bank to urgently agree measures to reduce crippling borrowing costs for southern eurozone countries.
Mario Monti who met his French counterpart Francois Hollande in Rome on Tuesday complained – again – that his country’s economy is not so bad as to justify how much it’s having to pay to borrow.
Monti said Rome is doing what is needed on economic reform and deficit reduction, adding: “But when a country makes progress with its economic policy that must be recognised elsewhere in the European Union, so there is not a continuation of this big divergence in interest rates for government borrowing, which doesn’t reflect Italy’s real situation.”
Both Monti and Hollande are pushing for some stimulus to urgently restore economic growth and create jobs as part of the plan to to save the euro.
Hollande said: “We have the same concerns – growth and stability. We want the same thing, that is taking Europe forward on a path that I call integration solidarity.”
German Chancellor Angela Merkel, who was hosting European Union President Herman Van Rompuy for talks in Berlin, is keener on governments keeping their spending in check than stimulus.
Not surprising given that Germany is the EU paymaster for bailing out its struggling eurozone brethren.
Berlin is also resisting the European Central Bank’s plans to buy short-term government bonds of countries like Spain and Italy to take the borrowing cost pressure off them.
Adding to the pressure on the European Central Bank to do more to fight the eurozone debt crisis, the credit rating agency Moody’s has changed its outlook on the triple A rating of the European Union to “negative” and warned it could downgrade the region.
That made already jittery financial markets even more nervous on Tuesday.
Investor are uncertain over whether Thursday’s key ECB policy meeting will deliver the goods on the hoped for bond-buying scheme designed to ease the euro debt crisis.
The sell off was also fueled by weak manufacturing data from the United States.
Banks, energy companies and miners were among the biggest fallers.
The euro slipped against the dollar and oil prices fell on renewed fears about weaker demand.