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Two questions for Mr Mario Monti

23/09/2012

A major network asked me to suggest two questions that might be put to Mr Mario Monti, Italy’s Prime Minister. Here are the ones I came up with. What do you think his answers will be?

Question 1: Italy and the ECB’s OMT program: Will it help you in the medium run?

Context: In the June EU Summit, you fought tooth and nail to save the euro from inactivity by having Europe’s bailout funds lend to the Italian and Spanish governments directly. Since then Mr Draghi, the ECB President, unveiled his OMT program (outright monetary transactions). Suddenly the markets calmed down, your borrowing costs tumbled and hope was restored.

Main Question: Are you now worried that your agenda-changing success, back in June, was short lived? That the strict conditions attached to the ECB’s OMT program are so onerous and demeaning for a proud country like Italy, indeed Spain too, that you will only apply for it when your situation has become too desperate? And since this is becoming common knowledge, will markets not turn against you soon, thus pushing you into such an unbearable program? Can your administration survive such indignity?

Question 2: Banking Union: Is Germany undermining your great success?

Context: In the same June Summit, you and Mr Rajoy played a major role in having Germany accept the notion that banking recapitalisation should be done directly from the Eurozone, rather than having heavily indebted governments like yours, Spain’s, Greece’s… borrow on the banks’ behalf. To do this however, it was agreed that all of the Eurozone’s banks should be supervised directly by the ECB. The German Finance Minister has since made it clear that he does not want to see the ECB supervise all banks. He wants it just to scrutinise around 20 or 30 large banks, leaving the rest to the national supervisory bodies. Given that most of the banking failures begin with the smaller banks (Northern Rock, Dexia, Bankia etc.), as well as the large banks’ affiliates, this would be inconsistent (A) with a genuine banking union under one supervisor (the ECB) and (B) with direct capital injections into the Eurozone’s banks (Spain’s in particular) that do not inflate the national debt of the countries in which they are domiciled.

Main Question: Do you fear that Mr Schauble’s suggestion that the ECB supervises only a small number of ‘systemic’ banks is a smart ploy for delaying, perhaps forever, direct recapitalisation of Spanish and Italian banks? Can Italy and Spain survive such a manoeuvre? Will you insist that all banks must be under the ECB’s watch?

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