A secret has been revealed. Back in June, European finance ministers pulled an all-nighter. During it, Italy’s prime minister, Mario Monti, gave Germany’s chancellor Angela Merkel an ultimatum: either change your stance and help reduce costs of borrowing for Spain and Italy or Italy will block all deal flow.
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Witnesses say that Merkel told Monti his ultimatum was not helpful. He acknowledged as much. And Monti didn’t get what he wanted. But the way was paved for the European Central Bank (ECB) to take the action it needs to save the euro.
The compromise has highlighted core differences between Germany and Italy. Is Germany’s insistence that austerity alone (which includes gut-wrenching reforms) enough to restore confidence in compromised sovereign states like Spain and Italy?
Or is financial support from across the Eurozone on top of cuts in spending what Spain, Italy, and others need to solidly repair their broken systems?
As those questions are asked, Europe continues to grapple with potential financial meltdowns from the likes of Spain and Italy, both of whom come closer every day to asking Europe for a bailout. Mr. Monti says ECB president Mario Draghi should already have the confidence to act decidedly based on that nine-hour overnight discussion during the European Summit.
Monti has become the primary challenger to Germany’s harsh stance. He has threatened Germany with a scenario that Italy would become an enemy to Germany
that repudiates Europe, monetary stability, and the euro.
US Treasury Secretary Timothy Geithner says Monti has credibility both with Germany and internationally. He has criticized Italy’s burgeoning debt since the early 1980s and believes in balanced budgets as the fairest legacy to leave future generations.