Europe needs more growth and IMF flexibility, Italy's Monti says

Rome/New York: European leaders must complement austerity with growth policies while the International Monetary Fund needs more flexibility in providing aid to halt the euro-region's debt crisis, Italian Prime Minister Mario Monti said.

The European Union's entire stance "must become more growth-oriented" for countries to get their finances under control, Monti said in a speech in Washington yesterday. The IMF should also show a "broader understanding" for countries receiving aid, while going beyond "strict adherence" to deficit cuts to seek "pragmatic solutions".

Monti is trying to convince European allies that the response to the debt crisis has been overly reliant on austerity measures that are deepening the region's economic slump and complicating deficit reduction. Monti's success at spurring the growth needed to reduce Italy's $2.5 trillion Dh9.1 trillion) debt, about four times the size of the EU's bailout fund, may be vital to preventing the 17-nation euro region from breaking up.

"Italy is not in a state where it needs financial support," Monti said. "But it needs better governance and wants to contribute to better governance."

In a meeting with President Barack Obama after the speech, the two talked about the "imperative of growth," Monti said. Obama said the Italian prime minister had not only restored faith in Italy, "he's also been able to generate confidence throughout Europe."

"The prime minister came in at a very difficult time in Italian politics and the Italian economy and I just want to say how much we appreciate the strong start that he has embarked on and the very effective measures that he is promoting inside of Italy," Obama said.

Obama also called on Europe to increase the size of its bailout mechanism and erect a bigger firewall against debt-crisis contagion. Monti travels to New York tomorrow to talk to investors.

"There's no European more important for Obama to meet right now to understand that European leaders are aware of the problems and are dealing with them," said Philippe Moreau-Defarges, a researcher at Paris-based French Institute of International Affairs. "There's no European leader right now who understands better how the global economy works."

Pushing back

Monti, 68, an economist who as a European Union competition commissioner in the 1990s told companies such as Microsoft Corp what to do, has been pushing back against Chancellor Angela Merkel and Germany's insistence on austerity measures as a panacea for the debt crisis. He also took aim at the IMF yesterday, saying the fund needed to be more flexible in closing a bailout deal with Greece that could lead to a further reduction in borrowing costs.

"It is my understanding that many of us in Europe, including the member states which traditionally are on the side of caution and of discipline, believe that this is the moment to consider that if there is a minimum of compliance with the requirements set out, this is the moment to turn the page and extinguish this potential Greek explosion," he said. Euro-pean finance ministers are meeting in Brussels to review an agreement between Greece and its biggest creditors — the EU, European Central Bank and the IMF — on additional budget-cutting measures that would free up a second bailout package worth €130 billion (Dh637 billion) and allow Greece to skirt default.

Getting a deal on Greece would ease concern about debt-crisis contagion and help further reduce Italy's borrowing costs, Monti said. The yield on Italy's 10-year benchmark bond fell 10 basis points to 5.48 per cent, the lowest in more than four months.