Italy, Spain threaten to block euro deal

June 28, 2012 at 9:16 PM
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BRUSSELS, June 28 (UPI) -- Italy and Spain threatened to block a eurozone deal unless they got urgent aid to lower their borrowing costs, officials said as Day 1 of a crisis summit ended.

Italian Prime Minister Mario Monti and Spanish Prime Minister and government President Mariano Rajoy were adamant any deal to stimulate economies must be tied to immediate measures to bring down their costs. the British newspaper The Daily Telegraph reported.

The two countries blocked a flagship $125 billion "growth pact" and Monti warned of inter-European Union gridlock unless the leaders mobilized EU bailout funds to underwrite Italian and Spanish bonds.

German Chancellor Angela Merkel dismissed their threats as "scaremongering."

The day before she called short-term measures to help reduce Spanish and Italian borrowing costs "eyewash and fake solutions."

French President Francois Hollande said he disagreed with Merkel and called for the 27-national economic and political confederation to offer short-term help.

"I have come here to get very rapid solutions to support countries in the greatest difficulty on the markets, even though they have made considerable efforts to restore their public finances," he said.

Merkel went into the two-day Brussels summit on the eurozone debt crisis after telling the German Parliament she imagined it would include "controversial discussion."

"Many eyes will be focused on Germany," Europe's biggest and strongest economy, she said.

But Merkel -- nicknamed "Frau Nein" by the European press -- held firm to her assertion the eurozone's next move must be to create rigorous new central controls over European banks and national budgets.

This has long been her precondition to consideration of any joint-liability proposals that would obligate German taxpayers to shoulder weaker economies' debts.

She has said such proposals may not pass muster in German's Federal Constitutional Court -- and they may remove pressure on debt-laden governments and banks to clean up their financial acts.

"What we need much more [than joint liability] are new rules of enforcement when budget rules are broken," Merkel told lawmakers Wednesday. "I believe that eurobonds, or mutualized debt, are the wrong way to go.

"There are no quick or easy solutions," she said. "There is no magic formula -- no coup -- by which the debt crisis can be overcome once and for all."

Merkel's remarks came as the leaders of Spain and Italy warned time was running out for them to remain solvent.

"We can't keep funding ourselves for a long time at the prices we're currently funding ourselves," Rajoy said Wednesday.

"The most urgent issue is financing," he said.

"There are institutions and also financial entities that cannot access the markets," Rajoy said. "It is happening in Spain, it is happening in Italy and it is happening in other countries.

"This is a crucial issue," he said, calling for "urgent" action.

Monti said the EU faced possible ruin if something it not done soon to lower interest rates on his country's national debt.

Ignoring Italy's plea to lower borrowing costs could prompt "political forces" to say, "Let European integration, let the euro, let this or that large country go to hell," Monti said in Brussels Wednesday night.

Such a scenario "would be a disaster for the whole of the European Union," he said.

Monti said he was prepared to work through the weekend if needed -- beyond Friday's scheduled end of the summit -- to work out a growth and debt package that financial markets can believe in.

He told lawmakers Tuesday he would block agreement at the summit unless emergency measures to reduce borrowing costs were agreed.

Benchmark Italian 10-year bonds, used to set rates on other loans, yielded 6.2 percent Thursday, while comparable Spanish bonds yielded 6.9 percent.

The yields represent the costs of government borrowing. Yields near 7 percent are considered by many to be unsustainable.

The EU summit is the first meeting of European leaders since pro-bailout parties in Greece won parliamentary elections June 17, barely defeating a left-wing coalition that promised to tear up Greece's austerity-based bailout program if it won the election.

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