ROME Dec 12 Italy is sensitive to
financial market movements, but it cannot adjust policy every
time there is a negative reaction among investors, Foreign
Minister Giulio Terzi said on Monday.
He was reacting to the failure of a European summit deal
last week to restore market confidence, forcing the European
Central Bank on Monday to step in to hold down bond yields in
vulnerable countries such as Italy.
Terzi, foreign minister in Mario Monti's new technocrat
government, said the summit deal last Friday was "a significant
step forward to resolve both the immediate problems of
imbalances on the financial markets and the long- and
medium-term question of finding a complete governance mechanism
in the euro zone."
Talking to foreign journalists, Terzi acknowledged that the
summit, which agreed to strengthen euro zone budget discipline,
had not impressed the markets.
"But if it depended only on that, we would have had the
European treaty written in London or Wall Street," Terzi said.
He added that the objective of the summit was to find
credible macro-economic instruments to resolve the euro zone's
perilous debt crisis and to agree on a way to move towards a new
fiscal pact. "In this sense it was a success," he said.
"Let's hope the markets understand. If they do not
understand, of course there is a problem of communication. But
we cannot cut tens of billions of spending every time the spread
goes up a point or goes down a point," he added.
Borrowing costs for Italy and Spain, the euro zone's third
and fourth economies, rose on Monday and the spread or gap
between their bond yields and safe-haven German bunds widened as
markets remained unconvinced by Friday's deal.
Traders said the ECB had stepped in to buy Italian debt
after yields rose.
Yields on Italy's 5-year bonds rose past 7 percent on Monday
and 10-year yields came close to the same level, which was the
point at which Greece, Ireland and Portugal were forced to take
The euro zone crisis has escalated since Italy moved into
focus in July because of its massive debt and stagnant growth.
Bailing out Italy would overwhelm Europe's current defences.
Terzi is a member of a technocrat government appointed in
November under respected economist Monti after previous Prime
Minister Silvio Berlusconi lost the confidence of markets
because of his repeated failure to implement economic reforms.
Monti's tough austerity programme to face the crisis has
impressed analysts and investors, but much of Italy's fate
remains out of its hands, dependent on market perception of
whether the euro zone can agree a viable strategy to overcome
the wider crisis.