May 24, 2024

Italy and Spain Defer Use of Bond Plan

Instead, both the Spanish prime minister, Mariano Rajoy, and his Italian counterpart, Mario Monti, insisted that they would continue to push for rapid adoption of a European fiscal and banking union. “With regard to the European agenda, Spain and Italy are more united than ever,” Mr. Rajoy said at a joint news conference with Mr. Monti.

Mr. Rajoy has been under pressure to tap a bond-buying program announced by Mario Draghi, the president of the European Central Bank, in early September. But he has refused to leap at the opportunity, and on Monday he said Madrid would ask for such financing only when he felt it was “convenient” to do so. Mr. Monti also dismissed the idea that Italy would need such help to meet its immediate refinancing obligations.

Neither leader is eager to expose his government’s finances to the greater European scrutiny that requesting the aid would entail.

The Madrid meeting of the two prime ministers came shortly after Mr. Draghi endorsed a proposal initially made by Wolfgang Schäuble, the German finance minister, to establish a European monetary and economic affairs commissioner. That person would have the power to intervene in national budgets if euro zone governments broke deficit rules. Creating such a post would probably require the approval of all 27 countries in the European Union.

“If we want to restore confidence in the euro zone, countries will have to transfer part of their sovereignty to the European level,” Mr. Draghi said last week during an interview with the German magazine Der Spiegel.

Mr. Rajoy and Mr. Monti discussed the supercommissioner proposal on Monday, but neither offered support for the idea, warning that it could further confuse investors about policy making in the euro zone.

“There is a limit to the signals that can be given to the markets in terms of fiscal virtue,” Mr. Monti said. “The markets could see this as meaning that the existing instruments don’t work.”

The Rajoy-Monti show of unity underlines the extent to which Madrid and Rome face the same challenges in persuading investors to buy their debt at a sustainable borrowing cost.

Mr. Monti argued that the difference between the interest rates of German and Italian government bonds, albeit less than before the European Central Bank’s bond-buying offer, remained “higher than what is justified” by economic fundamentals.

Separately, the Bank of Spain on Monday gave indicative valuations for the so-called bad bank that Madrid is creating to let troubled banks clean their balance sheets by transferring their bad property loans and foreclosed assets.

The central bank said that any loans that lenders placed in the bad bank would have an average write-down of 45.6 percent, climbing to an average 63.1 percent write-down for foreclosed assets. It estimated that the bad bank would start with about 45 billion euros of toxic assets. But it remained to be seen whether such discounts would be sufficient to attract the private investors that Madrid is hoping will share part of the risk in the bad bank.

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