EU Summit: Monti earns agreement on anti-spread shield

Merkel, Troika control for spread shield countries

29 June, 11:15

Italian premier Mario Monti Italian premier Mario Monti

(ANSAmed) - BRUSSELS - The eurozone is to receive a mechanism to stabilise markets and, above all, to fix a ceiling for interest rates of so-called "virtuous" countries. At the end of a gruelling round of talks, during which the deadlock was broken by the thread of a veto from Italy and Spain on the entire package of measures at the EU summit - including the 120 billion euro growth plan - Mario Monti managed to obtain a shield against the spread, a measure that he had been demanding from his European partners for months, and in so doing ended the resistance of Angela Merkel. The Italian Prime Minister made it clear, however, that Italy will not use the measure for the moment.

Countries whose bonds are purchased by the ESM/EFSF fund will need to respect conditions to be verified by the EU-ECB-IMF troika, the German Chancellor Angela Merkel has underlined.

The agreement, which was reached at dawn by heads of state and government from the eurozone, will see the Eurogroup tasked with setting out by July 9 the details of the mechanism which, through the state-saving fund (the current EFSF and the future ESM), will keep at bay the interest rates of "virtuous" countries. The move is a triumph for Italy, as the agreement does not include a visit from the troika nor the subsequent safeguarding for the country demanding protection from the shield. Instead, the measure will require the simple signature of a "memorandum of understanding", Monti explained, with which the country in question will commit to "continuing to fulfil the conditions that they are already respecting". For the moment, though, it has not been decided whether or by how much the anti-spread fund's resources will be increased.

The deal is the result of an unprecedented diplomatic tactic. Monti, flanked by Mariano Rajoy, threatened to deadlock the entire summit if his demands were not met, despite the fact that Eurogroup leaders had proposed a draft mechanism that appeared to go against Italian demands. Monti clearly feared that heads of state and government would once again use their vetoes and, along with Madrid, therefore threatened to stall talks. Spain and Italy have common interests, with both countries keen to bring the spread under control and agreeing that Spanish banks should be recapitalised directly. There is also a common feeling that the ESM no longer has the status of privileged creditor, causing a flight by other investors.

By blocking the launch of the 120 billion euro growth package, Spain and Italy were forcing France and François Hollande - who is responsible for the plan - to turn up the pressure on Angela Merkel. Unsurprisingly, German sources reported that the Chancellor is "very irritated" by Rajoy, but particularly by Monti. The strategy worked to perfection. Joint pressure on Berlin from Rome, Madrid and Paris began during the working dinner. Participants in the talks were then reduced to the 17 countries in the eurozone, the sign that a deal could be close. At around 02:30 in the morning, the respective stances began to draw closer, but Italy stepped on the brakes, saying that the Eurogroup mandate lacked sufficient detail. This was the cue for long and drawn out negotiations. Emerging at dawn, though, Monti expressed his satisfaction to the press. "It has been very useful because we have decided satisfactory measures for the stability of the euro," he said. Monti added that the agreement was "very positive" for the eurozone and for Europe, not least because, in terms of growth, it confirms the "very important role played by public investments, the strong development of the single market", without forgetting the role of eurobonds. The Prime Minister recognised the difficulty of the talks. "There was a particularly difficult moment", when Italy "blocked the approval of the growth pact during the course of the meeting".

But at the end of a "difficult process", Monti continued, "the result was good". The Prime Minister drew particular attention to the spread shield, towards which he had worked tirelessly, not least because the agreement "will be implemented very soon, by July 9". As Monti was keen to point out, "Italy proposed these measures, but at the moment we have no intention use them". The hope is that even if the increase in the fund's resources has not yet been decided (although the possibility of granting the fund a banking licence remains on the table), the "mental release" will prevent a black Friday or Monday on the markets.

Monti also had words for Italy's football team who, in a similar vein to their Prime Minister, overcame tricky German resistance last night. "I am happy and proud," Monti said, adding that he would travel to Kiev for Sunday's final. (ANSAmed).


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