Europe divided over German proposals for a ‘super commissioner’ who could punish nations with large deficit
Fresh tensions emerged between Germany and southern Europe as Spain and Italy criticised Berlin’s proposals for a European Union “super commissioner” with powers to police national budgets and punish those with large deficits.
“This is an idea, that considered on its own, I personally don’t like,” said Spanish prime minister Mariano Rajoy after meeting his Italian counterpart Mario Monti in Madrid.Monti claimed not to have read a Der Spiegel interview in which European Central Bank (ECB) president Mario Draghi threw his weight behind the super-commissioner idea, but nevertheless recalled that, in 2003, Germany has been one of the first countries to break EU deficit rules. “It doesn’t sound very good,” he added. “Markets could take this as a sign that current instruments do not work.”
Both prime ministers claimed their recession-hit countries did not currently need a soft bailout that would allow the ECB to start buying bonds to bring down borrowing rates, though Rajoy was prepared to admit a request might come eventually. “The instrument is there and any country can ask for it if it finds it necessary. And I will do just that,” he said. “When I believe that it is in the interests of Spain to ask for it, I will ask for it,” he said.
Monti said Italy did not need the bailout, but said it was important that at least one country use the eurozone’s new soft bailout mechanism in order to prove to markets that the ECB was serious about defending the euro.
“It is of paramount importance that the instrument is put to work, that it does not remain theoretical,” Monti said, in what seemed to be a reference to Spain.
The plan relates to the ECB purchasing a government’s bonds, which results in a lowering of that country’s borrowing rates in the bond markets.
The size of Spain’s economic downturn was underscored by the prices at which a new “bad bank”, to be set up as part of a eurozone rescue of Spanish banks, will forcibly buy toxic real estate assets from bailed-out banks.
The “bad bank”, known as Sareb, will take between €45bn and €90bn of real estate with discounts on book value varying from 80% to 32%, according to the Bank of Spain.
The minimum discount will still be above the market fall in Spanish real estate prices, which have so far dropped 25% from their peak.
But Italy also appeared to be running into fresh difficulties after former prime minister Silvio Berlusconi, sentenced to prison for tax fraud last week, threatened to withdraw support for Monti’s government over the weekend.
As Italy’s bond yields began to rise yesterday, Monti refused to speculate on whether this was a sign of market fear that Berlusconi would carry out his threat.
“You can ask that question to the political parties, and to the markets, but not to me,” he said, claiming his duty was merely to keep governing Italy until the spring.