12 December 2012

Presseurop: Rajoy faces down the Cavaliere factor

Mario Monti is not the only victim of the Cavaliere's return to politics. His Spanish counterpart is suffering from restive markets and once again has to cope with distrust of southern Europe. It's a risk – but an opportunity to seek support from his partners as well.

“It's the worst news that Spain could have received just now.” Blunt words indeed, spoken yesterday by a member of the government referring to the impact that the Italian political crisis may have on Spain. The government of Mariano Rajoy is not hiding its concern. The uncertainty unleashed by the departure of Mario Monti and, above all, the uncertainty over who can replace him and with what economic programme, has undermined confidence that the markets had begun to place in the European periphery and is jeopardising the plans of the Spanish president to wriggle out from accepting European Union aid.

Until now, the chief executive has succeeded in avoiding the so-called “soft” or “second generation” rescue, thanks to the confidence injected by the European Central Bank (ECB) in September, when it came out with its programme for buying government debt. Rajoy had hoped that the mere existence of this mechanism would continue to frighten away speculators and serve to keep a lid on the risk premium until reforms and adjustments had come into force.

However, the possibility that Silvio Berlusconi may return to power and the sudden exit of the Italian Prime Minister have blown away the calm that had set in among investors.

Although the prospects of the Spanish delegation are not exactly optimistic, given the fast-approaching German elections in November 2013 some of the prime minister's believe that the Italian crisis is just the thing that can make European partners sit up and notice the risk, prompting them to decide to take more decisive steps towards banking integration. Not surprisingly, as proved by earlier Council meetings, the European Union and especially the German chancellor, Angela Merkel, make greater headway when they are up against the ropes.

Both the European Commission and the governments fear the consequences of a problem that seemed to have been contained. European Commission President José Manuel Barroso called on Italians not to exploit the upcoming elections “as an excuse to doubt the indispensability of the measures taken by the Monti government". The President of the European Parliament, Martin Schulz, meanwhile, warned that the possible return of Berlusconi “poses a threat” to the stability of Italy and of the EU as a whole.

And more important than Spain having to end up asking for help are the consequences that the open-ended crisis may have on the euro. Senior EU officials acknowledge the reluctance of Germany to allow unlimited bond purchases by the ECB, out of fears that such a move will trigger inflation, and if Berlin decides to put a “stop” on it there will not be enough money to support an economy such as the Italian or Spanish.

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