PARIS (MNI) – Italy’s borrowing costs are “too high,” and a E30
billion austerity package shepherded through parliament late last year
by the country’s new government is meant to help keep them under
control, Italian Prime Minister Mario Monti said here Friday.

Speaking at a two-day colloquium sponsored by the French Ministry
of Finance, Economy and Industry, Monti acknowledged that the austerity
plan — consisting largely of tax hikes and pension reform — was a
sacrifice for the Italian people. But he said there was little choice
but to follow the stringent policies being urged by Italy’s European
partners in the face of soaring sovereign bond yields that threatened to
price the country out of the market.

“We decided to swallow the European medicine, the European pill,
and that meant being disciplined, going down that straight line so that
interest rates could be contained,” Monti said. “And we did that.”

But Italian borrowing costs have been climbing in recent weeks, and
are once again well into the danger zone, with 10-year bond yields above
7%.

They first surpassed 7% in the fall, but after the December EU
summit calmed markets for a brief spell, and the European Central Bank
weighed in with a massive new infusion of 3-year liquidity, the yield
fell closer to 6.5% just before Christmas.

However, the New Year is off to a rocky start, and the 10-year
Italian bond is now trading back above 7.1%.

Monti, who was essentially appointed two months ago by the
president of Italy and the parliament to take over from ex-Prime
Minister Silvio Berlusconi, asserted that if Rome sticks to its new
fiscal plan, it will have a balanced budget by 2013, compared to a
deficit today that is 5% of GDP.

Monti hinted that he might like to see greater crisis intervention
by the European Central Bank, saying “the ECB should be given greater
authority” — but he did not elaborate. He also said “the decisions of
the ECB must be respected.”

He put the onus on national governments of the Eurozone to
implement the measures on which they have decided to attack the crisis,
both in the short- and long-terms. The Eurozone, he said, needs
“sufficient ammunition” to ensure its credibility.

“In the minds of investors, it must be clear that the euro is a
sustainable currency,” the Italian premier said. “That is why all these
measures must be implemented without delay.”

Monti urged his European colleagues towards ever-greater unity. “If
Europe cannot base its growth on better political and economic
integration, it will not be in a position to take its rightful place in
the new global economic order,” he said.

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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