In Rome, Italy’s new prime minister Mario Monti, the ex-central banker who succeeded Silvio Berlusconi, presented a cabinet consisting exclusively of technocrats instead of career politicians. The cabinet also presented an austerity program that, Mr. Monti said, was vital for the survival of the eurozone.
“We must make sure Italy is no longer perceived as Europe’s weakest link,” he said.
But the markets didn’t buy it. Sovereign bond yields for Italy remained high, while yields for Spanish and French 10-year bonds rose – close to the critical 7 percent mark in Spain. At that level, borrowing gets prohibitively expensive. When countries like Ireland and Portugal crossed that threshold, they were forced to ask for help from the EU.
Spain’s Prime Minister José Luis Rodríguez Zapatero launched a dramatic appeal to his eurozone partners. “We need a European Central Bank that does justice to its name and defends the common currency,” he said on Thursday, suggesting that the ECB should on a large scale buy bonds of countries under pressure. This appeal was mainly directed at German Chancellor Angela Merkel.
Germany is strictly opposed to the ECB intervening on behalf of struggling economies. Wolfgang Franz, who heads the German government’s council of economic advisers, calls it “a deadly sin.”