‘Limit the contagion’, says Mario Monti

Italian premier Mario Monti has urged his European partners to speed up measures to limit contagion from the debt crisis and to stimulate growth or risk a backlash from citizens.

In a speech to an economic forum in Brussels, Mr Monti said Italy was being penalised for the lack of quick action to boost confidence in the eurozone.

Market uncertainty has pushed up the country’s cost of servicing its public debt, which is 120 per cent of gross domestic product.

While the interest rates on Italian debt eased after his government took office in November, they have risen again on fears that political chaos in Greece could cause the country to leave the eurozone and over Spain’s struggles to contain its banking crisis. Italy is being affected, he said, “because of the overall weakness of the system, more than for any specific weakness of the country”.

Mr Monti acknowledged Italy’s high debt-to-GDP ratio as the result of “the sins of the past” – excessive public sector spending and weak economic growth – but said his government of technocrats has been working to bring it down.

The markets’ failure to recognise the efforts could prove to be “a powerful policy disincentive,” he said.

“I think Europe should accelerate its efforts in order to limit the contagion not simply because contagion and crisis would be a frightful event, but even more because this would dismantle support for sustainable fiscal discipline,” he said.

He called on Germany, the main proponent of austerity as a way through the crisis, to take leadership in finding ways forward.

France and Spain are pushing for the pace of cuts to be slowed in some countries to avoid making recessions worse and for stimulus measures to boost growth, but Germany has argued public finances need to be fixed first.