July 13, 2020

Enrico Letta, Italy’s New Premier, Puts Stimulus First

“I will speak to you in the subversive language of truth,” Mr. Letta told lawmakers in his debut speech to the lower house of Parliament after the swearing-in of his cabinet on Sunday. Without measures that stimulate growth, he said, “Italy will be lost.”

He conceded that Italy, the European Union’s third-largest economy, must address the debts that had made the country one of the first to stumble in the euro zone economic crisis. But the most urgent priority, he said, is to reverse the downward spiral in what he called one of the “most complex and painful seasons” in Italy’s history.

The new prime minister’s rare coalition government has at least temporarily ended the political gridlock that has consumed Italy since an indecisive election in February. After Mr. Letta’s speech, he easily won a confidence vote, supported by political forces that are ordinarily at war with each other. He is expected to win a second vote on Tuesday in the Senate.

Mr. Letta said the effort to revive Europe’s economy lay in greater European integration, moving beyond a common currency and toward a political and banking union. “Europe can return to being a motor of sustainable development only if it finally opens,” he said. “The destiny of the entire continent is closely intertwined.”

His first trip, scheduled for Tuesday, will be to Berlin, Brussels and Paris, he said, “to give a sign that ours is a Europeanist government” and to confirm that Italy would continue with its budget commitments.

He said the fiscal rigor of the kind enforced by the government of his predecessor, Mario Monti, was an indispensable precondition to growth. But he also said fiscal rigor alone would “kill Italy” in the long run.

Mr. Letta is part of a growing European effort to question the austerity policies championed by Germany as the medicine to deal with the economic malaise in Europe, where unemployment has surpassed Great Depression levels in some places in the south and recession is creeping toward the once-resilient economies in the north.

Mr. Letta’s government is almost entirely composed of politicians from his party, the center-left Democratic Party, and from the center-right People of Liberty. They are united by a common cause: heading off economic disaster while toning down the antagonistic tenor that has dominated Italian politics for the last 20 years.

More than a decade of stagnation and protracted recession had taken a toll on citizens, Mr. Letta said. In some cases it had created a “personal vulnerability” and “lack of hope that risks turning into anger and conflict,” he said, citing an attack on Sunday in which an unemployed Italian man shot two military police officers in front of the prime minister’s office. The gunman later told investigators that he had aimed to kill politicians.

The new government was formed out of necessity after national elections in February effectively split Parliament into three factions. More than a quarter of the vote went to the anti-establishment Five Star Movement, which campaigned to overthrow the existing political class, depicted as overprivileged, overpaid and out of touch with the hardships faced by many citizens. A record number of voters abstained from the polls.

Demonstrating that the popular discontent had not been ignored, Mr. Letta said one of his government’s first orders of business would be to abolish the stipend that ministers receive on top of their salary as members of Parliament.

He pledged a series of tax cuts for small and medium businesses, and a delay in the increase of the value-added tax, a form of consumption tax, which had been set to take effect this summer.

The June payment of an unpopular housing tax would be canceled, he said, to give Parliament time to work out a reform of the tax that would “give oxygen to families,” especially those in greatest need.

Though several political parties campaigned to abolish the housing tax, it became the signature issue for the People of Liberty and its leader, former Prime Minister Silvio Berlusconi, to support Mr. Letta.

Article source: http://www.nytimes.com/2013/04/30/world/europe/enrico-letta-italys-new-premier-puts-stimulus-first.html?partner=rss&emc=rss

Dispute Over Interest Rates Holds Up Greek Debt Talks

While considerable progress has been made, Greece’s financial backers — Germany and the International Monetary Fund — have been unyielding in their insistence that the longer-term bonds that would replace the current securities must carry yields in the low 3 percent range, officials involved in the negotiations said on Sunday.

Bankers and government officials say they still expect a deal to be done; Greece and its private sector creditors on Friday appeared close to a deal that would bring the yield to below 4 percent. But the continuing disagreement over the interest rate is a reminder of just how complex and politically tricky it is to restructure the debt of a euro zone economy.

A debt restructuring agreement is a precondition for Greece to receive its next installment of aid from Europe and the monetary fund, 30 billion euros that the country needs to stave off bankruptcy.

European Union finance ministers were to resume talks Monday on solutions to the region’s debt crisis.

Greece’s private creditors, which hold about 206 billion euros, or $265 billion, in Greek bonds, are resisting accepting a lower rate. They argue that they are already faced with a 50 percent loss on their existing bonds and that the lower rate would increase the hit they would take.

It would also make it more difficult to describe the deal as voluntary. A coercive deal, bankers warned, could lead to a technical default and the initiation of credit-default swaps, or insurance, an outcome that all sides were trying to avoid.

The bonds’ rate “is the only issue,” said a senior official directly involved in the negotiations. “We have to accommodate the needs of the Greek economy.”

Talks broke off over the weekend when Charles H. Dallara, the managing director of the Institute of International Finance, a bankers group that is representing private sector bondholders, left Athens. In a statement, a spokesman for the group said that Mr. Dallara had a previously planned personal engagement in Paris and that progress was being made toward securing an agreement.

During an interview broadcast Sunday on the Greek television channel Antenna, Mr. Dallara emphasized that creditors were insisting on 3.8 percent to 4 percent. “This is certainly the maximum offer that is consistent with the voluntary debt exchange,” he said. “It is largely in the hands of the official sector to choose the path — a voluntary debt exchange or a default.”

With the Greek economy forecast to shrink by 6 percent this year and 3 percent next year, the ultimate goal of Greece’s lowering debt to 120 percent of gross domestic product by 2020 is seeming more and more unrealistic. With G.D.P. plummeting, the International Monetary Fund is insisting that Greece’s debt load — currently 160 percent of G.D.P. — be reduced more quickly and that the private sector pay its fair share.

Bankers say that the fund has been demanding a coupon rate of less than 3.5 percent for bonds maturing by 2014. Over subsequent years, the rate would rise to 4 percent and above as the economy improved.

A majority of the funds the monetary fund has disbursed so far has been paid out to Greece’s bondholders as opposed to helping Greece itself. Of the close to 20 billion euros that the fund has disbursed, two-thirds has gone to repay bondholders — an increasing number of which have been hedge funds betting that this trend will continue.

Persuading Greece and its bankers to agree on a deal to restructure 200 billion euros in debt was never going to be easy, given the many different constituencies involved. And bankers say a number of other important technical issues must also be settled, including what kind of collateral would back the new bonds and how long their maturities would be.

Also holding up discussions was the question of what to do about the European Central Bank’s 55 billion euros in Greek bonds. The bank’s refusal to take a loss has been regularly cited by investors as unfair, and many have said that they will sue Greece if they have to take a loss while the bank does not.

To get around this, officials are now discussing the possibility that Europe’s rescue fund might lend money to Greece to allow it to buy the bonds back from the European Central Bank at the price the bank paid for them — thought to be about 75 cents on the euro. The central bank would then not have to take a loss on these holdings. By selling them back to Greece, it would remove itself as an obstacle to a broad restructuring agreement.

“Both sides know that a deal has to get done,” said a banker who asked not to be identified because he was closely involved in the talks. “But they have to dance this dance to get there.”

Separately, the German magazine Der Spiegel reported that the Italian prime minister, Mario Monti, was pushing for an increase in the European bailout fund to 1 trillion euros, or $1.29 trillion. That would be more than double the amount that the European Financial Stability Facility is authorized to lend to troubled euro zone countries.

A German government official, who was not authorized to be quoted by name, said Sunday that Germany had received no formal request from Italy to increase the fund. In any case, he said, Germany would be opposed to an increase now.

Germany’s position remains that the way to reduce borrowing costs is for euro zone countries to take steps to reduce debt and remove impediments to economic growth. Recent declines in borrowing costs for Spain and Italy show this is the most effective policy, the German official said.

“We don’t see the need for additional funds,” he said. “It’s not the way to reduce financing costs. You need to do the reforms.”

A spokeswoman for the Italian government had no official comment on the Spiegel report. Mr. Monti has been on record in recent weeks calling on Europe to increase the “firewall” of bailout money available to lend to vulnerable economies.

Jack Ewing contributed reporting from Berlin. Niki Kitsantonis and Rachel Donadio contributed from Athens.

Article source: http://www.nytimes.com/2012/01/23/business/global/greek-talks-stumble-over-interest-rates.html?partner=rss&emc=rss

European Central Bank Chief Suggests Broader Rescue Is Possible

In the run-up to a meeting of European leaders late next week, Mr. Draghi’s remarks seemed to be part of a larger effort by the bank and the region’s biggest economic powers — Germany and France — to lay the foundation for a broader rescue without seeming to compromise their principles.

Later in the day Thursday, the French president, Nicolas Sarkozy — acknowledging the region’s debt crisis — announced that he and the German chancellor, Angela Merkel, would meet in Paris on Monday “to make French-German propositions to guarantee the future of Europe.”

Last weekend, Germany and France began floating a plan to hold member nations of the euro currency union more financially accountable to their fellow members by giving European Union officials the power to vet and approve their national budgets. Euro zone agreement to such a proposal is seen as a possible precondition to increased financing by the central bank, to which Germany and France are the biggest contributors.

Mr. Draghi, in the manner of central bankers, made no explicit promises on Thursday. And the quid pro quo he offered governments was indirect. But his remarks illuminated how the bank might answer increasingly desperate calls for the bank to escalate its intervention in bond markets without violating its own mandate or alienating Germany, where opposition to a central bank bailout of Greece or Italy continues to run deep.

Speaking to the European Parliament in Brussels, Mr. Draghi stopped well short of offering a European version of the sort of large securities purchases that the United States Federal Reserve has used to try stimulating the American economy.

But he seemed to be saying that the bank would use its virtually unlimited resources to keep financial markets at bay, if government leaders in the euro region agreed to do their part by addressing the structural flaws that had allowed the debt problems of Greece to mutate into a threat to the global economy.

“What I believe our economic and monetary union needs is a new fiscal compact,” Mr. Draghi said. “It is time to adapt the euro area design with a set of institutions, rules and processes that is commensurate with the requirements of monetary union.”

After government leaders take steps to improve the way the euro area is managed, “other elements might follow,” Mr. Draghi said. European leaders will hold a summit meeting on Dec. 9, which is now seen as the latest deadline — there have been many during the nearly two-year debt struggle — for stemming the crisis.

Europe appeared to have bought a bit more time on Wednesday, when the Federal Reserve, the central bank and four other national central banks agreed to free up more dollar lending to European banks. But the stock market rally that followed that move did not carry over to Thursday — although successful government bond auctions in Spain and France did indicate at least a temporary calm in the debt storm.

By insisting that greater action would depend on rules to enforce spending discipline among euro members, Mr. Draghi might at least partly address German concerns that greater central bank action would reward countries that have mismanaged their finances and violate a prohibition against financing governments.

“Mr. Draghi appeared to be holding up the possibility of a greater degree of E.C.B. intervention if euro area governments were to commit, at next week’s key E.U. summit, to a tougher set of fiscal rules,” analysts at Barclays Capital said in a research note.

After insisting for weeks that the central bank is not authorized, under the European Union treaty, to bail out national governments, Mr. Draghi on Thursday hinted at how the treaty mandate might nonetheless let the central bank to do just that. He noted that the mandate required it to ensure price stability “in either direction.”

David Jolly contributed reporting from Paris.

Article source: http://feeds.nytimes.com/click.phdo?i=0a14c59de1c2ae35c0574c5564ba2d26