Monti urges political backing in euro crisis

Thu Jun 14, 2012 2:20am EDT
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By Steve Scherer and Jan Strupczewski

ROME/BRUSSELS (Reuters) - Technocrat Prime Minister Mario Monti appealed to Italy's politicians on Wednesday to back his tough economic medicine to avoid Rome becoming the next victim of the euro debt crisis, after a bailout for Spain's banks failed to calm markets.

Monti, whose approval rating has slumped as new taxes take hold and recession bites, told parliament in Rome: "We should use these new difficulties to double our efforts both on the European front and within Italian politics."

Four days after EU partners lent Spain's banks up to 100 billion euros ($125 billion), Madrid's sovereign debt rating was cut by three notches to Baa3 from A3 by Moody's, which noted the rescue plan for the banks will add to government debt. Citing Madrid's own difficulties borrowing in the markets and weak economy, the agency said it could cut the rating further.

A Reuters poll of economists found that 35 out of 59 think Spain will follow Greece, Ireland and Portugal in needing a full state bailout within 12 months.

Still, 37 out of 59 expected the currency union to survive in its current form for at least another year - albeit with a very weak economy given the obstacles Europe's leaders face in trying to resolve the two-year old sovereign debt crisis.

"It's not a question of whether the crisis will get worse before it gets better, but rather it must get worse before it gets better," said Richard McGuire, senior fixed income strategist at Rabobank International in London.

In a sign of the concern growing at the White House that a failure in Europe to find the road back to growth might bar Barack Obama's path to re-election in November, the U.S. president called EU Council head Herman Van Rompuy to discuss the financial crisis, a spokesman in Brussels said.

U.S. Treasury Secretary Timothy Geithner said later that the European leaders maintained a strong political commitment to making the euro work.   Continued...

Italian Prime Minister Mario Monti (R) shakes hands with his Slovenian counterpart Janez Jansa at Chigi Palace in Rome June 12, 2012. REUTERS/ Max Rossi