Britain's finance minister called for some form of fiscal union to resolve the euro zone's debt crisis on Saturday, Aug 13 while his Italian counterpart renewed a call for the introduction of common euro zone bonds.
After more than a year of piecemeal responses to the euro zone's still-expanding debt crisis, some economists and policymakers are making the case for broader changes to how the currency bloc works.
The spread of market concerns in the crisis to France in the past week have raised the stakes further ahead of a meeting of the bloc's French and German leaders next week -- both of whom have opposed more radical moves to date.
UK Chancellor George Osborne said deeper integration had been the inevitable conclusion from the start of the single currency project.
Asked if the only answer for the health of the euro zone was some kind of fiscal union, he told BBC radio: "The short answer is yes."
"I was against Britain joining the single currency. One of the reasons ... was because I thought the remorseless logic of having a single currency is you end up having something akin to a single budget policy. You can't have one without the other," Osborne said on Saturday.
"An unstable euro is very bad news for us, we have to ensure that our influence on important decisions like financial services is not undermined. But we do yes have to allow greater fiscal union while protecting our own national interest."
Britain has held onto its pound currency and is only part of discussions over the European debt crisis as a member of the broader European Union.
Italian Economy Minister Giulio Tremonti, however, also renewed a call for common European bonds on Saturday, saying they would be the best solution for a debt crisis which he said still risked spreading to other countries.
Speaking a day after the government adopted a 45.5 billion euro package of spending cuts and tax hikes aimed at restoring confidence in Italy's public finances, Tremonti made a renewed plea for common debt issuance in the euro zone.
"A greater degree of integration and consolidation of public finances in Europe is necessary," Tremonti told a news conference to explain the austerity package.
"The best solution would have been the euro bond, with various possible models which could have been adopted," he said.
Tremonti noted that he and Luxembourg Prime Minister Jean-Claude Juncker had long argued in favor of joint euro bonds and he believed the trend was pointing toward closer coordination of fiscal policies.
"We expect developments which we think could and should take us in a direction toward fiscal consolidation and integration in Europe," he said.
The issue of common European debt would allow weaker and more indebted states to benefit from the higher rating of countries like Germany to issue debt more cheaply.
But Germany and France have so far opposed any common debt issuance, arguing that it would remove a key driver of fiscal discipline in individual member states and push up their own borrowing costs as AAA-rated sovereigns. (Reuters)
Italy vows to cut down its huge bureaucratic and political costs as part of austerity moves
The Italian government is vowing that a new austerity package will slash Italy's huge bureaucratic and political costs, with thousands of jobs and elected posts being gradually eliminated and a myriad of the country's tiny towns losing their administrations.
Premier Silvio Berlusconi acknowledged the cuts were in some cases "excessive," but said they were approved because of widespread discontent among citizens over the perks enjoyed by the ruling class at a time of belt-tightening.
The government approved the euro45.5 billion ($64.84 billion) emergency package Friday seeking to balance the budget by 2013 in response to demands from the European Central Bank.
Cabinet minister Roberto Calderoli vowed Saturday to cut the number of national lawmakers and eliminate local governments for some small towns and villages. (AP-Associated Press)
The key take away from this week is not the weakest U.S. jobs data in nine months.
Nor is the take away from the week that European officials have yet to design a way to get the private sector to participate in aiding Greece without taking the risk that the rating agencies would recognize the scheme as a distressed exchange and give Greek bonds a default rating.
With the next tranche of aid to be handed over, there is plenty of time -- a couple months at least, for Europe to figure a way to square the circle.
Instead, the significant development this week is the pressure on Italy. Italian bonds sold off every day this past week and this brought the 10-year benchmark yield to its highest level in nine years.
The 40 basis-point increase is the most in a week since last January, as the Greece situation was what British English calls "hotting up." The premium Italy must pay over Germany has widened to almost 250 basis points, the highest under EMU.
Italy remains committed to a balanced budget in 2014. In an effort to achieve this the Italian government has unveiled a 40 billion-euro savings program. A Moody's analyst spoke for many when he questioned whether the political situation will allow for the effective implementation.
A combination of domestic political woes for Prime Minister Berlusconi and Finance Minister Tremonti, the slashing of Portugal's credit rating by Moody's, when both Moody's and S&P has Italy on negative credit watch, and nervousness ahead of next week's release of European stress tests conspired to undermine Italy.
There is also some concern that Italian banks, which are among the largest holders of Italian sovereign bonds, have a waning appetite to expand sovereign exposure, given the huge redemptions over the next 18 months.
The Bank of Italy Governor and the next ECB President Draghi seemed to counter market rumors that some Italian banks might fail this year's stress test. Italian banks slid today and a trading in a couple of large banks was suspended after they hit the exchange circuit breakers. (The Street)
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