Even before the dust settles on Europe's €100 billion Spain bailout, Italy's technocrat Prime Minister Mario Monti faces rising pressure amidst fears that the debt-ridden country will be next in line to plead for financial assistance.
Monti's ability to perk up Italy's sagging economy is being called into question. The 69-year-old premier met with the leaders of his coalition parties Tuesday night and pleaded with them shore up support for his government to overcome the current critical situation and give an image of unity abroad, a statement read. On Wednesday morning, Monti then beseeched the parliament to back his austerity plan to calm flustered international markets.
Italy's debt costs skyrocketed Wednesday as an aftershock of Spain's bailout and a plunge in investor confidence. Yields on Italian government debt are mirroring Spain's.
Spain's 10-year government bond yields jumped to 6.73 percent Wednesday morning. In its most recent auction of 364-day government bonds, Italy sold Treasury bills worth €6.5 billion at the highest cost since December. Rome's Treasury rose to an interest rate of 3.97 percent, up from 2.34 percent in a similar auction last month.
Monti has been working hard to give Italy an image makeover since he replaced the notorious Silvio Berlusconi, who was muscled out of office last October. Under Monti's stewardship, the nation's budget deficit shrank to 2.8 percent of its GDP in the last quarter of 2011, from 4.2 percent in the year-earlier period, the national statistics institute Istat reported Wednesday. Under his austerity regime, tax revenues climbed 2.9 percent as against a marginal 0.2 percent rise in government spending in the fourth quarter.
Italy currently sits on a sovereign debt of $1.9 trillion. Its budget deficit is not as serious an issue as its pallid growth rate, finance experts say. The unemployment rate crossed the 10 percent mark in April, reaching its highest level since 2004.
While investors are heckling at Monti's reticence about Italy's need for a bailout, many Italians are revolting against his attempt to balance tax rises with spending cuts and growth reforms.
For us, they're doing the same thing as the Berlusconi government. Monti is not working with any kind of equality and is asking for more and more sacrifices from us. They're not even guaranteeing the right to work, which is a fundamental right, a woman protester told Euronews during a union-led demonstration in Rome earlier this year.
As Monti now struggles to stem Italy's nosebleed from Spain's bailout, he is under mounting suspicions, among some Italians, that he is a bootlicker to German Chancellor Angela Merkel. The latest move in a slew of German-Italian interactions is Germany's approval of Monti's austerity measures to steer Italy toward better fiscal health. The Monti government proposes to prune fiscal shortfalls by €80 billion ($105.87) over three years.
If Italy continues along Monti's path, there will be no risks, German Finance Minister Wolfgang Schaeuble told an Italian daily, La Stampa in an interview on Tuesday.