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Germany vs. Italy: At eurozone meeting, the battle is over urgent action

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Germany’s Angela Merkel said this week that she will noy agree to common debt in Europe “as long as I live.”

Italy’s appointed prime minister, Mario Monti, who just passed a crucial labor-law reform, sent a salvo back, saying Europe faces disaster if it can’t stop high debt costs that are sinking his economy and appear to be the result of EU delay and foot-dragging.

Mr. Monti said angry “political forces” in Italy and elsewhere could win the day. Local sentiment, he told reporters in Brussels ahead of the summit, is: “Let European integration, let the euro, let this or that large country" rot.

Italy’s current benchmark 10-year bond costs are 6.3 percent; Spain’s costs are at 7 percent, considered unsustainable.

“The big problem at the meeting in Brussels is Italy,” says François Heisbourg of the Foundation for Strategic Studies in Paris. “Monti is drowning and Brussels and Berlin are not helping him. If Italy goes under, any agreements won’t matter.”

In January, at its most recent “summit to end all summits,” the EU agreed to closer fiscal union; at the same time, the European Central Bank quietly loaned out some $1 trillion to more than 800 European banks in what was seen as “quantitative easing,” EU-style.

But as seen over the past two years, those measures did not sufficiently impress markets. Greece had one failed election in May, and its new government still needs $14 billion to meet expenses and wants to renegotiate its bailout terms.

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